Goods and Services Tax 2022 English (31!03!2022) Final For Printing-062f0e3be13e397.79281451

Union Government Department of Revenue (Indirect Taxes – Goods and Services Tax)–Report No.
5 of 2022
lR;eso t;rs
Report of the
Comptroller and Auditor General of India
for the year ended March 2021
© COMPTROLLER AND
AUDITOR GENERAL OF INDIA
www.cag.gov.in
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Dedicated to Truth in Public Interest
Union Government
Department of Revenue
(Indirect Taxes – Goods and Services Tax)
Report No. 5 of 2022
Report of the
Report of the
Union Government
for theDepartment
year ended March 2021
of Revenue
Laid on the table of Lok Sabha/Rajya Sabha on ____________
Union Government
Laid
Laid onon the
the table
table ofof Lok
Lok Sabha/RajyaSabha
Sabha/Rajya Sabha
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………………..
Table of Contents
Contents Page
Preface i
Executive summary iii
Chapter I : Indirect Taxes Administration and Revenue Trend 1-8
1.1 Nature of Indirect Taxes 1
1.2 Organizational Structure 2
1.3 Revenue Trend 3
1.4 Conclusion 8
Chapter II : Audit Mandate, Audit Universe and Response to udit 9-13
2.1 Audit Mandate 9
2.2 Audit Universe 10
2.3 Audit Sample, Audit Efforts and Audit Products 11
2.4 Follow-up of previous CAG’s Audit Reports 12
2.5 Response by Ministry to audit observations included in this 13
report
Chapter III : Effectiveness of Compliance Verification Mechanism 15-44
under GST
3.1 Status of implementation of simplified return mechanism 15
3.2 Scrutiny of Returns under GST 20
3.3 Monitoring mechanism with respect to Directorate General 22
of Analytics and Risk Management (DGARM) Reports
3.4 Internal Audit under GST 27
3.5 Anti-Evasion functioning of DGGI 29
3.6 Recovery of Arrears 33
3.7 Conclusion 42
3.8 Summary of Recommendations 43
Chapter IV : Reliability of GST data maintained by Goods and 45-53
Services Tax Network
4.1 Scope of audit and methodology followed 45
4.2 Inconsistencies between taxable values and tax liability 46
declared – resulting in capture of unreliable data
4.3 Inconsistencies in the CGST and SGST components of GST 47
4.4 Inconsistencies in Input Tax Credit (ITC) figures 49
4.5 Non-allocation of taxpayers, to either the Centre or the 52
States
4.6 Conclusion 53
4.7 Recommendation 53
Chapter V : Processing of Refund claims under GST 55-118
5.1 Introduction 55
5.2 Audit objectives 58
5.3 Audit scope, sample and methodology 59
Contents Page
5.4 Non-production of records 60
5.5 Audit criteria 61
5.6 Systemic issues 61
5.7 Compliance issues 79
5.8 Other Issues 112
5.9 Impact on State Goods and Services Tax 116
5.10 Conclusion 116
5.11 Summary of Recommendations 117
Chapter VI : Transitional Credits under GST 119-165
6.1 Introduction 119
6.2 Transitional arrangements for input tax 119
6.3 Trends and perspectives 120
6.4 Audit objectives 122
6.5 Audit scope and sample 122
6.6 Audit methodology 124
6.7 Audit criteria 124
6.8 Scope limitation 124
6.9 Audit findings 128
Appendix-I : Audit findings noticed during the period prior to 167
2020-21
Appendix-II : Achievement of the recovery targets by the Field 170
Formations
Appendix-III : Payment of refunds 171
Appendix-IV : Impact on State Goods and Services Tax 172
Glossary 177
Report No. 5 of 2022 (Indirect Taxes – Goods and Services Tax)
Report No. 5 of 2022 (Indirect Taxes ̶ Goods and Services Tax)
Preface
This Report for the year ended March 2021 has been prepared for submission
to the President of India under Article 151 of the Constitution of India.
The Report contains significant results of compliance audit of Central Board of
Indirect Taxes and Customs (CBIC) under the Department of Revenue. The
report deals mainly with the issues involving levy and collection of Goods and
Services Tax. A few audit findings with respect to Central Excise collections and
legacy Service Tax have been included to present a full picture of indirect taxes.
The instances mentioned in this Report are those, which came to notice in the
course of test audit during the period 2020-21, as well as those which came to
notice in earlier years but could not be reported in the previous Audit Reports.
The audit has been conducted in conformity with the Auditing Standards issued
by the Comptroller and Auditor General of India.
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Executive Summary
Goods and Services Tax (GST) is a tax on supply of goods or services or both
except taxes on the supply of alcoholic liquor for human consumption. GST
came into effect from 1 July 2017. Central Excise duty (except five Petroleum
and tobacco products), Service Tax, Additional Customs Duty, Special Additional
Duty of Customs (SAD) and most of the indirect taxes of States have been
subsumed into GST. This report deals mainly with the issues involving levy and
collection of Goods and Services Tax. A few audit findings with respect to
Central Excise collections and legacy Service Tax have been included to present
a full picture of indirect taxes.
This report is divided into six chapters. Chapter I provides a brief description of
the nature of indirect taxes, organisational structure of Central Board of
Indirect Taxes and Customs (CBIC), trends in Indirect Taxes revenue,
comparative growth of various components of Indirect Taxes and comparison
of GST Budget Estimates vs Actual Receipts. Chapter II describes the CAG’s audit
mandate for audit of revenue receipts, audit universe, audit sample, and result
of audit efforts. Chapter III brings out the status of implementation of the
simplified GST return mechanism; and the Department’s performance with
respect to the compliance verification functions such as scrutiny of returns,
internal audit and anti-evasion activities; and recovery of arrears. Chapter IV
discusses the audit observations relating to significant data inconsistencies
noticed during GST data analysis by Audit. Chapter V discusses the systemic and
compliance issues, observed during the course of the Subject Specific
Compliance Audit (SSCA) of processing of refund claims under GST. Chapter VI
contains significant findings of the Subject Specific Compliance Audit (SSCA) of
Transitional Credits under GST which were noticed during the examination of
records pertaining to transitional credits under the jurisdiction of CBIC. With
respect to the SSCA on processing of refund claims under GST, the Ministry
accepted audit observations with money value of ₹ 92.08 crore and reported
recovery of ₹ 52.93 crore, as of February 2022. With respect to the SSCA on
Transitional Credits, the Ministry accepted audit observations with money
value of ₹ 309.82 crore and reported recovery of ₹ 50.39 crore, as of
March 2022.
This highlights of the Report are as follows:
Chapter I: Indirect Taxes Administration and Revenue Trend
Indirect Taxes collections increased by ` 1, 20,555 crore (12.56 per cent) during
FY21 over FY20. The annual growth of Indirect Taxes (Y-o-Y), which constantly
decreased from 21.33 percent in FY 17 to 1.76 per cent in FY20, saw an upward
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trend in FY 21. Further, during FY 21 there was a rise in Indirect taxes to GDP
ratio when it increased to 5.45 per cent in FY 21 from 4.70 per cent in FY 20. The
growth in indirect taxes was due to increase in the receipts from Central Excise
Duty and Customs duty, which increased, respectively, by ` 1,50,215 crore and
` 25,467 crore over the previous year (FY20).
Central GST taxes1 revenue, however, decreased by 8.34 per cent from
` 6,01,784 crore in FY 20 to ` 5,51,541 crore in FY21. Central GST taxes as a
percentage of GDP also decreased to 2.79 per cent in FY 21 from 2.95 per cent
in FY 20 and 3.02 per cent in FY19.
(Paragraph 1.3.1. Paragraph 1.3.1.1 & Paragraph 1.3.2)
Chapter III: Effectiveness of Compliance Verification Mechanism under GST
In the last Audit Report2 on Indirect taxes, Audit had reviewed the progress
made in respect of implementation of simplified return mechanism under GST
and system-verified flow of Input Tax Credit (ITC). Audit observed that owing to
continuing extensions in the roll out of simplified return system, and delay in
decision making, the originally envisaged system verified flow of ITC was yet to
be implemented despite more than three years of roll out of GST. In the
absence of a stable and simplified return system, one of the main objectives of
roll out of GST i.e. simplified tax compliance system was yet to be achieved.
Accordingly, Audit had recommended that a definite time frame for roll out of
simplified return forms may be fixed and implemented as frequent deferments
were resulting in delay in stabilisation of the return filing system and continued
uncertainty in the GST eco-system.
During 2020-21, Audit further reviewed the status of implementation of
simplified return mechanism and noted significant progress with respect to
linking of GSTR-13 , GSTR-2B4 and GSTR-3B5; and restricting input tax credit (ITC)
of the recipient taxpayers to the supplies declared by suppliers. However, Audit
is of the view that further steps need to be taken to achieve a non-intrusive
e-tax system with system-verified flow of ITC such as mandatory filing of GSTR-
1 before filing of GSTR-3B and enhanced use of preventive checks in the GST
Common portal.
(Paragraph 3.1)
1 GST revenue included Central Goods and Services Tax, Integrated Goods and Services Tax, UT Goods
and Services Tax and GST Compensation Cess.
2 Audit Report No. 1 of 2021 (Indirect Taxes- Goods and Services Tax, Central Excise and Service Tax)
3 GSTR-1 is an outward supplies statement as provided in Section 37 of the CGST Act, 2017 and Rule 59
of the CGST Rules, 2017.
4 GSTR-2B is an auto-drafted statement containing the details of input tax credit which shall be made
available to the registered person in GSTR-3B.
5 GSTR-3B is a self-assessed summary monthly return which captures summary of outward supplies and
inward supplies liable to reverse charge.
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In the last Audit Report on Goods and Services Tax, Audit had observed that
CBIC was yet to put in place an effective system of scrutiny of returns based on
detailed instructions/standard operating procedure for the tax officers.
Therefore, an important compliance function of the department, as mandated
by law, was yet to be effectively rolled out even after three years of GST
implementation. Ministry replied (February 2022) that a risk-based
standardised system of return scrutiny based on detailed instructions/standard
operating procedure was under active consideration.
Audit recommends that an effective risk based standardised system of returns’
scrutiny (with detailed instructions/standard operating procedure) should be
implemented at the earliest so that the Department has sufficient time to take
action against non-compliant taxpayers before time-barring of cases as per law.
Such a scrutiny should involve risk-based selection of returns, and the results
of the scrutiny (similar to scrutiny assessments in respect of income tax) should
also be captured in real-time through the CBIC-GST System to ensure
transparency and minimize arbitrariness.
(Paragraph 3.2)
CBIC constituted (July 2017) the Directorate General of Analytics and Risk
Management (DGARM) with the aim to study, interpret and analyse indirect tax
data and share the outputs with various stakeholders.
DGARM identifies high risk taxpayers through use of extensive data analytics
on the GST returns data received from GSTN and DG Systems, and Income Tax
return (ITR) data received from CBDT. The list of high risk taxpayers is shared
with the CBIC field formations through various analytical reports on the
Directorate of Data Management (DDM) portal for action.
Audit examined the monitoring and feedback mechanism of DGARM
reports and observed that use of manual/semi-automated mechanism for
monitoring action by the Department in respect of high risk taxpayers,
identified in DGARM reports, is sub-optimal and fails to properly leverage
the full power of IT and thus, there is a need to ensure that the entire set
of activities should be end-to-end automated as part of the CBIC-GST
platform.
(Paragraph 3.3)
Chapter IV: Reliability of GST data maintained by Goods and Services Tax
Network
Audit was provided access to the GST returns data in February 2021, in GSTN’s
premises, pertaining to the period from FY 2017-18 to FY 2019-20, as filed by
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taxpayers up to August 2021. An analysis was performed with a view to deriving

an assurance on the quality of data captured.
(Paragraph 4.1)
During analysis of pan-India data provided by GSTN, Audit noticed significant
data inconsistencies between the taxable value and declared tax liability.
Inconsistencies were also noticed between the CGST and SGST components of
GST, and between ITC figures captured in GSTR-3B and GSTR-9 returns. Due to
significant inconsistencies in the GST data, Audit could not establish the
reliability of data, for the purpose of finding audit insights and trends in GST
revenue, and assessing high risk areas such as tax liability and ITC mismatch at
the pan-India level.
(Paragraph 4.6)
Audit recommends that the Ministry should consider introducing appropriate
validation controls (controls which prevent unreasonable data entries or alert
the taxpayer to unreasonable data or both) supplemented by post-facto data
analytics in respect of important data elements, where in data (such as tax
amounts; taxable values; tax components, like CGST and SGST; validation of ITC
and tax amounts, between the annual and monthly returns) is entered by the
taxpayer. An effective review and follow up system needs to be developed at
GSTN to review and address cases of data inconsistencies. In case of significant
deviations, tax officers may be alerted to the inaccuracies and directed to take
necessary action.
(Paragraph 4.7)
Chapter V: Processing of Refund Claims under GST
Timely refund processing facilitates the taxpayers by providing much needed
liquidity and cash inflows. Audit examined GST refund cases processed and paid
by the Central tax authorities pertaining to the period from July 2017 to July
2020. During the course of examination of records, Audit observed certain
systemic and compliance issues in relation to grant of refund by the
Department, which need to be addressed.
(Paragraph 5.3)
Systemic Issues
Audit observed that there exists a mechanism to match ITC availed by a
taxpayer with the GSTR-1 returns filed by the suppliers and to identify
fraudulent cases through data analytics after the amount has been paid.
However, adequate systems were not in place to prevent and mitigate refund
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related frauds by using real time/near real time data analytics so as to alert the
tax officials before sanction of refunds.
(Paragraph 5.6.1)
Audit analysed the data of Public Financial Management System (PFMS)
relating to GST refunds pertaining to the period from July 2017 to September
2019 (Pre-automation) received from 34 Commissionerates and followed it up
with substantive audit of the payment process. Audit noticed 410 instances of
double payments owing to lack of reconciliation and monitoring by the
Department amounting to ₹ 13.73 crore.
(Paragraph 5.6.3)
Even after four years of implementation of GST, a proper system of review and
post-audit of refunds had not been effectively institutionalized so that the
Department may rectify mistakes in time.
(Paragraph 5.6.4)
Compliance Issues
Audit examined compliance to the provisions of the CGST Act, associated rules,
procedures, etc. with respect to a risk-based sample of 12,283 refund cases
processed by the Central tax authorities. Audit noticed 522 cases where
excess/inadmissible refund of ₹ 185.28 crore was sanctioned due to various
reasons such as incorrect computation of Adjusted Total Turnover,
consideration of ineligible accumualted ITC, claims which were time-barred etc.
Audit noticed significant number of refund cases where the Department did not
adhere to the prescribed timelines for processing of refunds leading to
instances of significant delay in issue of acknowledgement, deficiency memo
and sanction of refund orders. Further, in the majority of cases, the
department did not pay interest to the taxpayers in case of delayed refunds.
(Paragraph 5.7)
For the audit observations highlighted in the Subject Specific Compliance Audit
report on GST refunds, the corresponding impact on the State Goods and
Services Tax is given in Appendix-IV.
(Paragraph 5.9)
Audit has included 12 recommendations to strengthen the refund processing
system. Ministry has accepted nine recommendations and stated that the
matter would be taken up with GSTN/DG(Systesm) in respect of eight
recommendations. In respect of one recommenmdation, Ministry stated that
the matter woud be taken up with the field formations and advisory was being
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issued. Further, the department has recovered ₹ 52.93 crore at the instance of
audit.
(Paragraph 5.10)
Chapter VI: Transitional Credits under GST

Transitional credit being a one-time flow of input tax credit from the legacy
regime into the GST regime, can be availed both by the taxpayers migrating
from the previous regime as well as new registrants under GST. A total of 10.13
lakh taxpayers had claimed the benefit of transitional credit of ₹ 1,72,584.96
crore under the GST Acts, out of which 3.46 lakh taxpayers constituting 34 per
cent of the taxpayers were under the jurisdiction of CBIC. The transitional credit
claims of these taxpayers accounted for ₹1,34,029.23 crore constituting 78 per
cent of the total transitional credit claimed under the GST Acts.
(Paragraph 6.3)
The Department identified 50,000 (Antarang6 data set) high value transitional
credit cases for verification by CBIC field formations. Audit selected pan-India
sample of 8,514 cases for detailed audit based on data analysis of these 50,000
cases. The sample size of 8,514 cases represented a transitional credit of
₹82,754.77 crore and constituted about 62 per cent of the total transitional
credit on the Central side.
(Paragraph 6.5)
In spite of requisitions and follow up, the CBIC departmental formations did not
produce records of 954 claims. As a result, 11 per cent of sample size
representing ₹6,849.68 crore of transitional credit claimed could not be
audited. Further, in another 2,209 cases representing ₹19,660.72 crore of
credit claimed, records were partially produced as relevant underlying records
determining the eligibility of credit were not produced, which constituted a
substantial scope limitation. Out of these records, the Ministry stated that
some of the records and verification related records have since been produced
to Audit. These would be audited and reported separately. Further, record
keeping by the departmental field formations varied widely and maintenance
of records for verified cases were inadequate in most of the jurisdictions.
Audit observed irregularities in 1,132 cases out of 6,999 cases verified by the
Department.
(Paragraph 6.8)
6
Antarang is the intra-net platform for officers of the CBIC.
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Systemic Issues
Audit observed that though the Department had identified the top 50,000 cases
for verification as a priority for 2018-19, the exercise was not yet completed,
and the Department was yet to verify 8,849 cases7. The rate of recovery of
detected irregularities was low. Cross jurisdictional issues and lack of
co-ordination in Central Tax jurisdictions in some zones impeded verification
and initiation of recovery actions.
In view of these findings, Audit recommends
• ensuring production of records for cases for which envisaged detailed
audit checks could not be completed. These will be reviewed subsequently
by Audit.
• addressing the issue of inadequate maintenance of verification records in
the jurisdictional formations as they are not amenable to review in the
present form.
Ministry provided an updated status of verification and stated (February 2022)
that another 4,770 cases had since been verified and 4,079 cases were pending
verification, and that irregular ITC detection had gone up to ₹ 10,965.91 crore
out of which ₹ 3,596.10 crore had been recovered. Ministry also stated that the
Board was actively monitoring the expeditious verification of transitional credit
claims.
(Paragraph 6.9.1)
Compliance Issues
Audit review disclosed significant irregularities in the transitional credit claims
of taxpayers across various categories regulated by the sub sections of Section
140, Section 142(11) as well as Section 50(1) of the CGST Act 2017 pertaining
to payment of interest.
Audit observed 1,686 compliance deviations in 1,438 cases, out of 7,560 cases
examined in detail, amounting to ₹ 977.54 crore, constituting a deviation rate
of 22 per cent. Irregularities noticed were relatively higher in four categories
viz; ineligible credit of duty paid goods in stock without documents, irregular
claim on unavailed credit on capital goods, ineligible credit on inputs or input
services in transit, and irregular claim on closing balances. Considering that the
Department had verified 79 per cent of these claims, the deviation rate
suggested that the verification process carried out by the Department suffered
from inadequacies. Out of 1,438 cases, where Audit noticed irregularities, 1,132
7 As of November 2021
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cases had been verified by the Department, and the Department did not point
out irregularities amounting to ₹735.69 crore.
In view of the above compliance findings, Audit recommends
• ensuring verification of the high risk claims reflected in Table 7aB of Tran
1 (credit on duty paid stock without invoices) and the cases where the
transitional credit claim under Table 5a (closing credit balance of legacy
returns) was in excess of the closing balance of legacy return.
• initiating remedial measures for the compliance deviations pointed out
during this audit before the claims become time barred.
(Paragraph 6.9.2)
x
Report
Report No.
No. 55 of
of 2022
2022 (Indirect
(Indirect Taxes
Taxes –̶ Goods
Goods and
and Services
Services Tax)
Tax)
Chapter I: Indirect Taxes Administration and Revenue Trend
This chapter gives an overview of the indirect taxes administration and the
revenue trends in indirect tax collection.
1.1 Nature of Indirect Taxes
This Audit Report deals mainly with the issues involving levy and collection of
Goods and Services Tax. A few audit findings with respect to Central Excise
collections and legacy Service Tax have been included to present a full picture
of audit of indirect taxes. Audit findings on levy and collection of Customs duty
are presented in a separate report. The indirect taxes covered in this report
are discussed below:
a) Goods and Services Tax: Goods and Services Tax (GST) is a tax on supply
of goods or services or both except taxes on the supply of alcoholic
liquor for human consumption. GST came into effect from 1 July 20178.
Central Excise duty (except five Petroleum products), Service Tax,
Countervailing duty (CVD), Special Additional duty (SAD) components
of customs and most of the indirect taxes of States have been
subsumed into GST. Central Excise duty is continued on five Petroleum
products as these products are out of GST at present, and will be
brought under GST later. Tobacco products are subject to both Central
Excise and GST. GST is a consumption based tax i.e. tax is payable in the
State where goods or services or both are finally consumed. In addition
to GST, a cess named GST Compensation Cess is levied on some goods
i.e. Tobacco products, Coal, Aerated water, Motor cars etc.
There are three components of GST as follows:
• Central Goods and Services Tax (CGST): payable to the Central
Government on supply of goods and services within the
State/Union Territory.
• State/Union Territory Goods and Services Tax (SGST/UTGST):
payable to the State/Union Territory Government on supply of
goods and services within the State/Union Territory.
• Integrated Goods and Services Tax (IGST): In case of inter-state
supply of goods and services, IGST is levied by Government of India.
Equivalent IGST is also levied on imports into India. IGST shall be
apportioned between the Union and the States in the manner as
8 With effect from 8 July 2017 in Jammu and Kashmir

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may be provided by Parliament by law on the recommendations of

the Goods and Services Tax Council.
b) Central Excise duty: Central Excise duty is levied on manufacture or
production of goods that have not been brought under the GST regime.
Parliament has powers to levy excise duties on tobacco and five
petroleum products (Entry 84 of List 1 of the Seventh Schedule of the
Constitution).
c) Service Tax (legacy): Service Tax was levied on services provided within
the taxable territory. Section 66B of the Finance Act, 1994 envisaged
that there shall be a tax levied at the rate of 14 per cent on the value of
all services, other than those specified in the negative list, provided or
agreed to be provided in the taxable territory by one person to another
and collected in such manner as may be prescribed.9 ‘Service’ had been
defined in section 65B (44) of the Finance Act, 1994 to mean any
activity for consideration (other than the items excluded therein)
carried out by a person for another and to include a declared service.10
1.2 Organizational Structure
The Department of Revenue (DoR) of Ministry of Finance (MoF) functions

under the overall direction and control of the Secretary (Revenue) and co-
ordinates matters relating to all the Direct and Indirect Union Taxes through
two statutory Boards namely, the Central Board of Indirect Taxes and Customs
(CBIC11), and the Central Board of Direct Taxes (CBDT) constituted under the
Central Board of Revenue Act, 1963. Matters relating to the levy and collection
of GST are looked after by the CBIC.
Indirect Tax laws are administered by the CBIC through its field offices. In view
of implementation of GST, CBIC restructured its field offices into 21 Zones of GST
headed by the Principal Chief Commissioner/Chief Commissioner vide circular
dated 16 June 2017. Under these 21 Zones of GST, there are 107 GST Taxpayer
Services Commissionerates that deal with GST and Central Excise, headed by the
Principal Commissioner/Commissioner. Divisions and Ranges are the
subsequent formations, headed by Deputy/Assistant Commissioner and
Superintendents, respectively. Apart from these Commissionerates, there are
49 GST Appeal Commissionerates, 48 GST Audit Commissionerates and
22 Directorates dealing with specific functions such as DG (Systems) for
9 Section 66B was inserted by the Finance Act, 2012 with effect from 1 July 2012; section 66D lists the
items the negative list comprises of.
10 Section 66E of the Finance Act, 1994 lists the declared services.
11 Formerly Central Board of Excise and Customs (CBEC).
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management of Information Technology projects and DG, National Academy of

Customs, Indirect Taxes & Narcotics (NACIN)12 for training needs.
1.3 Revenue Trend
1.3.1 Indirect Taxes revenue trend
Tax revenue of the Union Government consists of revenue receipts from Direct
and Indirect Taxes. In the pre GST regime, Indirect Taxes comprised of Central
Excise, Service Tax and Customs duties. After the implementation of GST,
Service Tax and duties of Central Excise, other than Petroleum products, have
been subsumed13 in GST. Central Excise continues to be levied on petroleum
products, and tobacco has been subjected to both GST as well as Central
Excise. The overall resources of the Government of India and details of tax
revenue of the Union Government from 2016-17 to 2020-21 have been given
in Table No.1.1 below:
Table 1.1: Resources of the Government of India
(`` in crore)
Tax component 2020-21 2019-20 2018-19 2017-18 2016-17
A. Total Revenue
24,59,510 25,98,705 25,67,917 23,64,148 22,23,988
Receipts**
i. Direct Tax Receipts 9,47,174 10,50,685 11,37,718 10,02,738 8,49,801
ii. Indirect Tax
Receipts including 10,79,929 9,59,374 9,42,747 9,16,445 8,66,167
other taxes
iii. Non-Tax Receipts 4,30,654 5,88,273 4,86,388 4,41,383 5,06,721
iv. Grants-in-aid &
1,752 373 1,063 3,582 1,299
contributions
B. Miscellaneous
37,897 50,349 94,979 1,00,049 47,743
Capital Receipts
C. Recovery of Loans
29,923 18,647 30,257 70,639 40,971
and Advances
D. Public Debt
81,62,910 73,01,386 67,58,482 65,54,002 61,34,137
Receipts
Receipts of
Government of India 1,06,90,240 99,69,087 94,51,635 90,88,838 84,46,839
(A+B+C+D)
Source: Union Finance Accounts of respective years.
.** Total Revenue receipts include share of net proceeds of direct taxes and indirect taxes
directly assigned to States.
The indirect taxes collections increased by ` 1, 20,555 crore (12.56 per cent)
during FY21 over FY20. The annual growth of Indirect Taxes (Y-o-Y), which
constantly decreased from 21.33 percent in FY 17 to 1.76 per cent in FY20, saw
an upward trend in FY 21. The growth in indirect taxes was due to increase in
12 Formerly National Academy of Customs Excise &Narcotics (NACEN)

13 Both Central Excise and Goods and Services Tax are levied on Tobacco products.
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the receipts from Central Excise Duty and Customs duty, which increased,
respectively, by ` 1,50,215 crore and ` 25,467 crore over the previous year
(FY20). The receipts from the Central GST taxes14, however, decreased by
` 50,243 crore (8.34 per cent) in FY21 over the previous year.
The share of Indirect taxes in total revenue receipts had constantly declined
from 38.95 per cent in FY17 to 36.92 per cent in FY20. The share of indirect
taxes in total receipts, however, increased to 43.90 per cent in FY21 from
36.92 per cent in FY20.
1.3.1.1 Growth of Indirect Taxes - Trends and Composition
Table 1.2 below depicts the relative growth of Indirect Taxes during FY17 to
FY21, with respect to GDP and Gross Tax Revenue.
Table 1.2: Growth of Indirect Taxes
(`` in crore)
Year Indirect GDP Indirect Taxes Gross Tax Indirect Taxes
Taxes* (At Current as per cent of revenue as per cent of
prices) GDP Gross Tax
revenue
FY17 8,61,812 1,51,83,709 5.68 17,15,968 50.24
FY18 9,13,486 1,67,73,145 5.45 19,19,184 47.59
FY19 9,40,099 1,89,71,237 4.96 20,80,465 45.18
FY20 9,56,574 2,03,51,013 4.70 20,10,058 47.58
FY21 10,77,597 1,97,45,670 5.45 20,27,104 53.15
Source: Tax revenue - Union Finance Accounts, GDP – Press note of CSO15.
*Indirect Taxes include revenue from CX, ST, GST, Customs and other taxes on commodity and
services.
Indirect Taxes as a percentage of GDP had continued to decline from

5.68 per cent in FY 17 to 4.70 per cent in FY20. However, during FY 21 there
was a rise in the Indirect taxes to GDP ratio when it increased to 5.45 per cent.
The increase in the Indirect taxes as a percentage of GDP may be attributed
mainly to the significant increase in the Central Excise Revenue in FY 21, which
increased to ` 3,89,667 crore in FY 21 from ` 2,39,452 crore in FY 20, an
increase of 62 per cent.
Indirect Taxes as a percentage of gross tax revenue showed a declining trend
from FY17 to FY19. However, from FY 20 onwards, the percentage of Indirect
Taxes to Gross Tax revenue showed an upward trend from 45.18 per cent in
FY 19 to 53.15 per cent in FY 21.
14 GST revenue included Central Goods and Service Tax, Integrated Goods and Service Tax, UT Goods
and Service Tax and GST Compensation Cess.
15 Press note on GDP released on 31 May 2021 by Central Statistical Office (CSO), Ministry of Statistics
and Programme Implementation.
4
4
When pointed out (December 2021), the Ministry stated (February 2022) that
higher growth in Indirect Taxes during 2015-16 to 2016-17 was inter-alia
contributed by change in tax policy/structure such as increase in service tax
rate and introduction of new levy/cess like Infrastructure Cess16, Swachh
Bharat Cess17, Clean Environment Cess18 and Krishi Kalyan Cess19. For short fall
in Indirect Taxes between 2017-18 and 2019-20, Ministry cited policy related
factors such as reduction in duty rates on Free Trade Agreements (FTA)
imports, impact of Export Promotional Schemes, reduction in Basic Excise Duty
on Petrol and Diesel (during 2017-18 and 2018-19) and impact of transitional
credits under GST regime. Ministry also stated that Index of Industrial
Production (IIP) for 2019-20 registered negative growth and import volumes
started declining towards the end of financial year due to onset of Covid-19
across the globe.
As for 2020-21, Ministry stated that since March 2020 GST collections had been
severely hit by low economic growth due to Covid-19. However, GST
collections had gained momentum in the second half of FY 2020-21 after
V-shaped recovery. Further, Excise Duty was raised on Petrol and Diesel in
March and May 2020, which contributed to healthy growth in Central Excise
revenue. With respect to Customs, Ministry stated that Government had made
concerted efforts to rationalise customs exemptions and a large number of
exemptions had been removed. Further, policy changes like introduction of
Customs (Administration of Rules of Origin under Trade Agreements) Rules,
2020 (CAROTAR)20, extensive application of Risk Management System (RMS)21,
etc., had helped in garnering additional revenue.
1.3.2 Comparative growth of various components of Indirect Taxes
During 2020-21, the Indirect Taxes revenue grew by 12.65 per cent from
` 9, 56,574 crore in FY 20 to ` 10, 77,597 crore in FY 21.
Table 1.3 and Chart 1.1 below depict the relative growth of various
components of Indirect Taxes during FY 19 to FY 21:
16 Infrastructure cess came into effect from 1 March 2016.

17 With effect from 15 November 2015 and abolished on 1 July 2017.
18 Earlier Clean Energy Cess and introduced with effect from 1 July 2010.
19 Krishi Kalyan Cess came into effect on 1 June 2016 and abolished on 1 July 2017
20 Chapter VAA and section 28DA were inserted in the Customs Act, 1962, vide clause 110 of Finance Act,
2020.
21 Risk Management System is an IT driven system with the primary objective to strike an optimal balance
between facilitation and enforcement and to promote a culture of self-compliance in customs

clearances.
5
5
Table 1.3: Comparative growth of various components of Indirect Taxes
(`` in crore)
Tax component 2018-19 2019-20 2020-21
Central GST Taxes22 5,84,33823 6,01,78424 5,51,54125
Customs 1,17,813 1,09,283 1,34,750
Central Excise 2,30,993 2,39,452 3,89,667
Service Tax 6,904 6,029 1,615
Other taxes and duties 51 26 24
Indirect Taxes 9,40,099 9,56,574 10,77,597
Source: Union Finance Accounts of the respective years.
Chart 1.1: Trends in various components of Indirect Taxes

(Amount in ` crore)
10,77,597
1200000 9,56,574
9,40,099
1000000
800000
5,84,338 6,01,784 5,51,541
600000
3,89,667
400000
2,30,993 2,39,452
200000
1,17,813 1,09,283 1,34,750

0
2018-19 2019-20 2020-21
Total Indirect Taxes Central GST Taxes Customs Central Excise
As evident from the table above, Central GST taxes26 revenue fell by
8.34 per cent (` 50,243 crore) during FY 21 over FY 20, whereas the other two
major components of Indirect taxes viz. Customs and Central Excise grew by
23.30 per cent and 62.73 per cent, respectively, during the same period. As a
result, during FY21, the share of Central GST taxes fell to 51 per cent of the
total indirect tax collections. The share of Central GST taxes in indirect taxes
during the previous two years, FY 19 and FY 20, was constant at 62 per cent.
The decrease in the Central GST taxes during FY21 may be largely attributed to
22 GST revenue included Central Goods and Service Tax, Integrated Goods and Service Tax, UT Goods
and Service Tax and GST Compensation Cess.
23 *` 13,944 crore was retained by the Centre from IGST account in contravention of the IGST Act, which
requires apportionment of IGST between Centre and States.

24 ` 9,125 crore was retained by the Centre from IGST account in contravention of the IGST Act, which

25 ` 7,251 crore was retained by the Centre from IGST account in contravention of the IGST Act, which

26 GST revenue included Central Goods and Services Tax, Integrated Goods and Services Tax, UT Goods
and Services Tax and GST Compensation Cess.
6
6
the negative impact of Covid-19 pandemic on Indian economy, which affected

manufacturing, trade and service activities.
Audit further noticed that the Central GST taxes revenue as a percentage of
GDP continued to decline during the last three years to 2.79 per cent in FY 21
from 2.95 per cent in FY 20 and 3.02 per cent in FY19. Buoyancy in Central GST
taxes revenue, therefore, is an area of concern and needs to be addressed by
the GST Council.
It may be pertinent to mention that out of all the major components of the
Indirect taxes, the Central Excise Duty, which, after implementation of GST,
is leviable only on five petroleum products and tobacco products 27,
increased significantly by ` 1,50,215 crore (62.73 per cent) during 2020-21
from ` 2,39,452 crore in FY 20 to ` 3,89,667 crore in FY 21. Increase in
Central Excise revenue was due to increase in the Central Excise duty on
Petrol and Diesel in March and May 2020. Central Excise Revenue as a
percentage of Indirect Taxes, therefore, grew to 36 per cent in FY 21 from
25 per cent in FY20.
as per GST laws and procedure, the GST rates on goods and services are
determined by the GST Council. Initially, the GST rates were fixed based on
pre-GST tax incidence and revenue neutrality of the rates. Since the inception
of GST, a number of rate rationalisations have been done on the
recommendations of the GST Council, which has led to a shortfall in GST
revenue. Rates have been reduced significantly, where relief of about
` 92,000 crore per year till July 2019 had been given. As regards FY21, Ministry
attributed the shortfall in GST collections to nation-wide and regional
lockdowns to contain the spread of Covid-19.
1.3.3 GST revenue of Government of India: Budget Estimates vs Actual

Receipts
Table 1.4 below presents a comparison of the Budget Estimates and the
corresponding actuals for GST receipts.
27 After implementation of GST from 1 July 2017, Tobacco products are subject to both GST and Central
Excise Duty.
7
7

Table 1.4: Budget, Revised estimates and Actual receipts (GST)
(`
` in crore)
Year BudgetTable 1.4: (BE)
Estimates Budget, Revised estimatesRevised
and Actual
Table 1.4: Budget,Revised Estimates receipts
estimates and
(GST)
(RE)Actual receipts (GST) Actual Receipts
CGST IGST Cess Total CGST IGST Cess Total CGST (` in (`
ÌGST crore)
` in crore)
Cess Total
Budget Estimates
Year (BE) Budget Estimates (BE)Revised Estimates (RE)Revised Estimates (RE) Actual Receipts
Actual Receipts
2017-18 No BE, only RE 2,21,400 1,61,900 61,331 4,44,631 2,03,261 1,76,688 28 62,612 4,42,561
CGST IGST Cess CGSTTotal IGST CGST Cess Total
IGST CGST
Cess IGSTTotalCess Total
CGST CGST
IGST IGSTCess Cess TotalTotal
2017-18 No BE, only RE 2,21,400 1,61,900 61,331 4,44,631 2,03,261 1,76,68828 62,612 4,42,561
8 2018-19No BE, only RE
6,03,900 50,000 2,21,400
90,000 1,61,9005,03,900
7,43,900 4,44,63190,000
61,331 50,000 2,03,261 1,76,688
6,43,900
28 4,42,561
62,61228,945
4,57,534 29 95081 5,81,560
2018-19 6,03,900 50,000 90,000 7,43,900 5,03,900 50,000 90,000 6,43,900 4,57,534 28,94529 95081 5,81,560
9 6,03,900 50,000 5,26,000
2019-20 7,43,900
90,000 28,000 5,03,900
1,09,343 50,000 5,14,000
6,63,343 90,000 6,43,900
-- 4,57,534
98,327 28,945
6,12,327
29 5,81,56095,553
95081 9,125
4,94,070 5,98,748
2019-20 5,26,000 28,000 1,09,343 6,63,343 5,14,000 -- 98,327 6,12,327 4,94,070 9,125 95,553 5,98,748
0 5,26,000 28,000 5,80,000

2020-21 2020-21 6,63,343
1,09,3435,80,000
--- --- 5,14,000
1,10,500 6,90,500
1,10,500 -- 4,31,000
6,90,500 98,327
4,31,000 6,12,327
---
--- 4,94,070
84,100
84,100 5,15,100
5,15,100 9,125
4,56,334 4,56,334
7,251 5,98,748
95,55385,192
7,251 85,192
5,48,777 5,48,777
Source: Union Finance Accounts and receipt budget documents of respective years.
1 5,80,000 --- 1,10,500 Source:4,31,000
6,90,500 Union Finance
--- Accounts
84,100 and5,15,100
receipt budget documents
4,56,334 of respective
7,251 85,192years.
5,48,777
As could be seen from the table above, the Central GST revenue30 was short of
As could
Source: Union Finance
the be
Accounts seen from the
and receipt
Budget Estimates fortable
budget above,
documents
the years the Central
of respective
2018-19, 2019-20 GST
andrevenue
years. 30 was short of
2020-21. The
As could be seenthefrom
Budget
shortfall Estimates
the table above,
vis-à-vis for
budgetthe the years
Central
estimates 22 2018-19,
wasGST revenue
per 2019-20
30
cent, 10 perwas and and
cent short per2020-21.
21 of cent The
shortfall
the Budget Estimates for vis-à-vis
the years budget
years estimates
for the 2018-19, 2019-20 andwas
2018-19, 22 perrespectively.
2020-21,
2019-20 cent,
and 10 per
Thecent
2020-21. Theandfor21 per cent
actuals
2018-19 and 2019-20 were also short of the Revised Estimates. During
forbudget
shortfall vis-à-vis the years 2018-19, 2019-20
estimates and102020-21, respectively. The actuals for
2020-21, however,was the22 per cent,
actuals exceeded per
the cent and
Revised 21 per cent
Estimates and were
for the years 2018-19
2018-19, and
106.54 per 2019-20
2019-20cent ofand were Estimates.
2020-21,
the Revised alsorespectively.
short of the TheRevised
actualsEstimates.
for During
2018-19 and 2020-21,
2019-20 however,
Whenwere
pointedalso the actuals
short exceeded
of 2021),
out (December the Revised theattributed
Revised(February
the MinistryEstimates.
Estimates
During 2022)
and were
106.54shortfall
2020-21, however, peractuals
the cent ofrevenue
in GST the Revised
exceeded Estimates.
the
to impact Revised
on Estimates
account of transitionaland
creditswere
(2017-18),
negative growth in Index of Industrial Production (IIP) (2019-20), and low
106.54 per centWhen
of thepointed
Revisedout Estimates.
(December 2021), the Ministry attributed (February 2022)
economic growth owing to nation-wide and regional lockdowns to contain the
When pointedshortfall in GST
out (December
spread revenue
2021),
of Covid-19 to impact
the Ministry
(2020-21). onattributed
account of(February
transitional credits (2017-18),
2022)
shortfall in GSTnegative
revenue growth
to impact
1.4 Conclusion
in on
Index of Industrial
account Production
of transitional credits (IIP) (2019-20), and low
(2017-18),
negative growth economic
in Index growth owing toProduction
of Industrial nation-wide(IIP)and(2019-20),
regional lockdowns
and low to contain the
economic growth spread
owingof Covid-19
Indirect
to Taxes (2020-21).
collections
nation-wide increased
and by ` 1,
regional 20,555 croreto
lockdowns (12.56 per cent)
contain theduring
FY21 over FY20. The annual growth of Indirect Taxes (Y-o-Y), which constantly
spread of Covid-19 (2020-21).
decreased from 21.33 percent in FY 17 to 1.76 per cent in FY20, saw an upward
1.4 Conclusion
trend in FY 21. Further, during FY 21 there was a rise in the Indirect taxes to
1.4 Conclusion GDP ratio when it increased to 5.45 per cent in FY 21 from 4.70 per cent in FY
Indirect Taxes collections increased by ` 1, 20,555 crore (12.56 per cent) during
20. The growth in indirect taxes was due to increase in the receipts from
FY21 over
Indirect Taxes collections FY20.
Central ExciseThe
increased annual
byand
Duty growthduty,
` 1,Customs
20,555 of Indirect
crore (12.56
which Taxes (Y-o-Y),
per cent)
increased, whichbyconstantly
during
respectively,
FY21 over FY20.decreased from
1,50,215
The ànnual 21.33
crore
growth and
ofpercent inTaxes
FYover
25,467 crore
` Indirect 17 (Y-o-Y),
to
the1.76 per
previous centconstantly
year
which in FY20, saw an upward
(FY20).
decreased fromtrend
21.33 inpercent
FY 21.
Central GSTFurther,
intaxes
FY 17 during
to
revenue 1.76 FY
per21
, however,centthere was saw
in FY20,
decreased abyrise aninupward
8.34 thecent
per Indirect
from taxes to
trend in FY 21.GDP ratio whencrore
` 6,01,784
Further, during itFYincreased
in FY 20 to to
21 there `was 5.45
5,51,541 per
a rise cent
crore
in inIndirect
FY 21 from
in FY21.Central
the GST 4.70
taxes taxes per
to as a cent in FY
percentage of GDP also decreased to 2.79 per cent in FY 21 from 2.95 per cent
GDP ratio when 20.it increased
The growth in indirect
to3.02
5.45 taxes
in FYwas due to increase
per centininthe FY receipts from
in FY 20 and perper
centcent
in FY19. 21 from 4.70
20. The growth Central Excisetaxes
in indirect Dutywas anddue Customs
to increaseduty, in which increased,
the receipts from respectively, by
1,50,215
Central Excise` Duty and crore
Customs and `duty, 25,467 croreincreased,
which over the previousrespectively, year (FY20).
by
` 67,998 crore was assigned to the States and balance ` 1,08,690 crore retained by the Centre
28
` 1,50,215 crore and `` 15,001

Central 25,467
GST taxescrore
crore was
29
over
to thethe
revenue
assigned Statesprevious
and balance `year
, however, (FY20).
decreased
13,944 crore
by 8.34 per cent from
retained by the Centre
30 CGST, IGST and GST Compensation Cess
` 6,01,784
Central GST taxes crore
revenue in FY 20 todecreased
, however, ` 5,51,541bycrore
8.34inper
FY21.Central
cent fromGST taxes as a
percentage
` 6,01,784 crore of GDP
in FY 20 to also decreased
` 5,51,541 crore in to8 2.79 per cent
FY21.Central GSTin taxes
FY 21 from
as a 2.95 per cent
percentage of in
GDPFY also
20 and 3.02 pertocent
decreased 2.79inper
FY19.
cent in FY 21 from 2.95 per cent
in FY 20 and 3.02 per cent in FY19.
` 67,998 crore was assigned to the States and balance ` 1,08,690 crore retained by the Centre
28
` 15,001 crore was assigned to the States and balance ` 13,944 crore retained by the Centre
29
28 ` 67,998 crore was assigned to the States and balance ` 1,08,690 crore retained by the Centre
29 ` 15,001 crore was assigned to the States and balance ` 13,944 crore retained by the Centre

8
8 8
)
Chapter II: Audit Mandate, Audit Universe and Response to Audit
2.1 Audit Mandate

Article 149 of the Constitution of India provides that the Comptroller and
Auditor General of India (CAG) shall exercise such powers and perform such
duties in relation to the accounts of the Union and of the states and of any
other authority or body as may be prescribed by or under any law made by the
Parliament. Parliament passed the Comptroller and Auditor General’s (Duties,
Powers and Conditions of Service) Act (CAG’s DPC Act) in 1971. Section 16 of
the CAG’s DPC Act authorizes CAG to audit all receipts of the Government of
India and of Government of each State and of each Union territory having a
legislative assembly and to satisfy himself that the rules and procedures are
designed to secure an effective check on the assessment, collection and proper
allocation of revenue and are being duly observed. Regulations on Audit &
Accounts (Amendments), 2020 lay down the principles for Receipt Audit.
2.1.1 Examination of systems and procedures and their efficacy
Audit of receipts includes an examination of the systems and procedures and

their efficacy mainly in respect of:
a. identification of potential tax assessees, ensuring compliance with
laws as well as detection and prevention of tax evasion;
b. exercise of discretionary powers in an appropriate manner including
levy of penalties and initiation of prosecution;
c. appropriate action to safeguard the interest of the Government on
the orders passed by appellate authorities;
d. any measures introduced to strengthen or improve revenue
administration;
e. amounts that may have fallen into arrears, maintenance of records of
arrears and action taken for recovery of the amounts in arrears;
f. pursuit of claims with due diligence and to ensure that these are not
abandoned or reduced except with adequate justification and proper
authority.
2.1.2 Audit of Indirect Taxes
Indirect Tax System is a self-assessment system in which the tax payers prepare
their own tax returns and submit it to the Department. This system is guided
by the fiscal laws including the Goods and Service Tax Act, 2017, Integrated
Goods and Service Tax Act, 2017, Goods and Service Tax (Compensation to
States) Act, 2017 and legacy tax acts viz. Central Excise Act, 1944 and Finance
9
9
Act, 1994. Indirect Tax administration assesses and scrutinizes the returns by
way of preliminary scrutiny, detailed scrutiny, internal audit etc. and ensures
the correctness of the tax so deposited by the tax payer.
To examine the efficacy of the systems and procedures of the Indirect Tax
administration, Audit examines the records related to the returns submitted
by the assessees along with the records of the various field formations and
functional wings of the Board.
2.2 Audit Universe
The audit universe includes the Department of Revenue, CBIC, its subordinate
organisations and field formations. The organisational structure of CBIC and
the number of departmental units are discussed in Para 1.2 of this Report.
Roles and duties of the CBIC and its field formations are discussed in the
subsequent paragraphs.
2.2.1 CBIC
The Central Board of Indirect Taxes and Customs, in the Ministry of Finance, is
the apex body for administering the levy and collection of indirect taxes of the
Union of India. It deals with the tasks of formulation of policy concerning levy
and collection of indirect taxes, prevention of smuggling and administration of
matters relating to indirect taxes and narcotics to the extent under CBIC's
purview. CBIC is headed by a Chairman and consists of six members.
2.2.2 Zones
Zones are the highest auditable field entities headed by Principal Chief
Commissioner/Chief Commissioner. Principal Chief Commissioner/Chief
Commissioner of Zone exercises supervision and control over the technical and
administrative work of all the Commissionerates in the Zone. They monitor the
revenue collection by each Commissionerate in the Zone and the proper
implementation of Acts/Rules and Board’s instructions/guidelines issued from
time to time.
2.2.3 Commissionerates
Commissionerates are divided into three categories viz. Executive

Commissionerates, Commissionerates (Audit) and Commissionerates
(Appeal).
The primary function of a Central Goods and Service Tax Commissionerate
(Executive Commissionerate) is to implement the provisions of the Central
Goods and Service Tax Act, 2017, the Central Excise Act, 1944, rules framed
10
10
under these Acts and other allied Acts of the Parliament under which duty of
GST/Central Excise is levied and collected. Administratively, each
Commissionerate is a 3-tier set-up with its Headquarters at the helm, four to
six Divisions at the second level and on an average four to seven Ranges under
each Division at the third and final level.
In each zone, there may be one or more Audit Commissionerates headed by a
Commissioner (Audit). The main function of the Audit Commissionerate is to
conduct internal audit of the taxpayers falling under its jurisdiction, convening
of monitoring committee meetings, helping executive Commissionerates in
pursuing the cases against the assessees etc.
Commissioner (Appeal) acts as an appellate authority and passes orders on
appeals in relation to adjudication orders passed by an authority subordinate
to the rank of a Commissioner.
2.2.4 Divisions
Each executive Commissionerate has four to six Divisions headed by a

Deputy/Assistant Commissioner. The Divisional heads are responsible for
proper compliance of laws and procedures within their jurisdiction. They are
also responsible for provisional assessments, sanctioning of refund claims and
perform quasi-judicial functions viz. adjudication of cases falling within their
competence.
2.2.5 Ranges
Each Division consists of on an average four to seven Ranges. The Range,

headed by a Superintendent, is the first office of contact between the trade
and industry, and the Department. Scrutiny of the assessment is done by the
Range on the basis of prescribed returns filed by the assessees. Apart from the
assessment work, the Range officials also check the correctness of statutory
declarations filed by the taxpayers.
2.3 Audit Sample, Audit Efforts and Audit Products
During 2020-21, Audit, in view of the access to pan-India data and back-end
systems of the CBIC, transitioned from generic risk assessment at unit level
(Ranges/Divisions) to a more comprehensive subject matter risk assessment
with respect to GST. Accordingly, nine field audit offices headed by Directors
General (DsG)/Principal Directors (PDs) of Audit carried out subject specific
audit of two major areas under GST viz. processing of GST Refunds and
Transitional Credits under GST.
11
11
As part of audit of GST refunds, Audit selected 12,283 refund cases for detailed
audit, from 3, 40,894 GST refund applications received by the Department
between August 2018 and July 2020. Audit observed various systemic issues
and compliance deviations with revenue impact of ` 185.28 crore. Audit
findings on processing of GST refunds are included in Chapter V of this Report.
With respect to audit of transitional credits under GST, Audit examined 7,560
(15 per cent) transitional credit cases, out of 50,000 cases31, identified by the
CBIC for verification. Audit observed 1,686 compliance deviations in 1,438
cases with monetary impact of ` 977.54 crore. Audit observations pertaining
to transitional credits are discussed in Chapter VI of this Report.
Audit also examined the GST returns data, in GSTN’s premises, from FY 2017-
18 to FY 2019-20, as filed by taxpayers up to August 2021. Audit noticed
significant inconsistencies in the GST data maintained by GSTN, which are
discussed in Chapter IV of this report.
Audit findings with respect to revenue trends and compliance verification
mechanism under GST are included in Chapter I and Chapter III of this Report.
In addition to this, Audit had also issued 14 draft paragraphs with money value
of ` 14.52 crore pertaining to GST audit and 03 draft paragraphs with money
value of ` 73.84 crore pertaining to legacy tax audit (Service Tax). These audit
findings were noticed during the period prior to 2020-21. The details of these
17 audit paragraphs are given in Appendix-I.
2.4 Follow-up of previous CAG’s Audit Reports
In the last four Audit Reports (excluding current year’s report), we had included
1,091 audit paragraphs pertaining to Central Excise, Service Tax and Goods and
Services Tax involving money value of ` 3,091.87 crore. The details of follow-
up on audit observations are included in Table 2.1.
Table 2.1: Follow-up of Audit Reports
(Amount in ` crore)
Year FY16 FY17 FY18 FY19 & FY20 Total
No. 255 300 239 297 1,091

Paragraphs Included
Amt. 435.56 1018.79 401.26 1236.26 3,091.87
Paragraphs As on No. 237 269 216 205 927

accepted 15.02.2022 Amt. 384.78 548.56 200.39 1,101.12 2234.85
Recoveries As on No. 178 160 116 107 561

effected 15.02.2022 Amt. 110.97 372.15 58.37 43.24 584.73
31 Antarang data set
12
12
The Ministry had accepted audit observations in 927 audit paragraphs

involving money value of ` 2,234.85 crore, and had recovered ` 584.73 crore
in 561 audit paragraphs.
2.5 Response by Ministry to audit observations included in this

report
We gave six weeks to the Ministry to offer their comments on the audit
observations issued to them before inclusion in the Audit Report. We have
included two subject specific compliance audit (SSCA) reports with money
value of ` 1,162.82 crore in this Audit Report. An Exit Conference on these
SSCAs was held with the Department on 7 February 2022. Ministry, with
respect to SSCA on processing of GST Refunds, accepted audit observations
with money value of ₹ 92.08 crore and reported recovery of ₹ 52.93 crore by
the Department at the instance of audit. With respect to SSCA on transitional
credits, Ministry accepted audit observations with money value of ₹ 309.82
crore and reported recovery of ₹ 50.39 crore by the Department at the
instance of audit. We have also included 17 draft paragraphs (with money
value of ` 88.36 crore), that were noticed prior to 2020-21. Ministry replied to
12 draft paragraphs and accepted audit observations in nine cases with money
value of ` 8.60 crore. Ministry’s reply is awaited with respect to five draft
paragraphs.
In addition to the above, we issued 11 draft paragraphs related to Compliance
verification mechanism under GST, Revenue Trends under GST, and data
inconsistencies in GST data maintained by GSTN. Ministry replied to eight draft
paragraphs and accepted audit observations/recommendations in seven draft
paragraphs. Ministry’s reply is awaited in respect of three draft paragraphs.
13
13
Chapter III: Effectiveness of Compliance Verification Mechanism

under GST
As per Section 59 of the Central Goods and Services Tax Act, 2017, every
registered person shall self-assess the tax payable on supplies made during the
tax period and file the return for each tax period. GST, therefore, continues to
promote self-assessment just like Central Excise, VAT and Service Tax.
The introduction of self-assessment underscored the need for an effective tax
compliance verification mechanism. Such a mechanism typically has three
important components—returns’ scrutiny, internal audit and anti-evasion
functions. This chapter brings out the status of implementation of the
simplified GST return mechanism and department’s performance with respect
to the aforesaid compliance verification mechanism and recovery of arrears.
3.1 Status of implementation of simplified return mechanism
In the last two Audit Reports32 on Goods and Services Tax, Audit had reviewed
the progress made in respect of implementation of the simplified return
mechanism and system-verified flow of Input Tax Credit (ITC). Audit observed
that owing to continuing extensions in the roll out of simplified return system
over the last years, and delay in decision making, the originally envisaged
system verified flow of ITC was yet to be implemented despite the lapse of
more than three years since the roll out of GST. In the absence of a stable and
simplified return system, one of the main objectives of roll out of GST i.e.
simplified tax compliance system was yet to be achieved. Accordingly, Audit
recommended that a definite time frame for roll out of simplified return forms
may be fixed and implemented as frequent deferments were resulting in delay
in stabilisation of the return filing system and continued uncertainty in the GST
eco-system.
During 2020-21, Audit further reviewed the status of implementation of
simplified return mechanism and noted the significant progress made in the
return system with respect to linking of GSTR-133 , GSTR-2B34 and GSTR-3B35;
32 Audit Report No.11 of 2019 (Goods and Services Tax) and Audit Report No. 1 of 2021 (Indirect Taxes-
Goods and Services Tax, Central Excise and Service Tax)
33 GSTR-1 is an outward supplies statement as provided in Section 37 of the CGST Act, 2017 and Rule 59
of the CGST Rules, 2017.

34 GSTR-2B is an auto-drafted statement containing the details of input tax credit which shall be made
available to the registered person in GSTR-3B.

35 GSTR-3B is a self-assessed summary return which captures summary of outward supplies and inward
supplies liable to reverse charge
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and restricting ITC of the recipient taxpayers to the supplies declared by

suppliers in GSTR-1/Invoice Furnishing Facility36 (IFF)37 .
The return mechanism in GST as envisaged originally in the GST and the
implementation status of the same is discussed in the following paragraphs.
The original return mechanism in GST envisaged electronic filing of returns,
uploading of invoice level information, auto-population of information relating
to ITC from returns of supplier to that of the recipient, invoice level information
matching and auto-generation of monthly returns.
The system verified flow of ITC was envisaged to be achieved through the
returns GSTR 1, 2 & 3.
a. It was originally envisaged that suppliers would file invoice-wise details of
outward supplies made by them during the month through GSTR-1. The
details of outward supplies so furnished by the supplier in GSTR-1 were to
be made available electronically to the registered recipients through Form
GSTR-2A.
b. Similarly, details of supplies relating to composition taxpayers, Input Service
Distributors and Non-Resident taxpayers as well as Tax Deducted at Source
(TDS) by Government departments / agencies and E-commerce operators
also were to be automatically made available electronically to the
recipients.
c. Thereafter, based on details available in Form GSTR-2A, the taxpayer was
supposed to furnish form GSTR-2 after including details of other inward
supplies.
d. The details of inward supplies added, corrected or deleted by the recipient
in his Form GSTR-2 were to be automatically made available to the supplier
electronically in form GSTR-1A through the common portal. The supplier
may either accept or reject the modifications made by the recipient, and
Form GSTR-1 furnished earlier by the supplier should stand amended to the
extent of modifications accepted by him.
e. As compared to GSTR-1, 1A & 2A which are invoice level granular returns,
GSTR-3 is a monthly return with the details of sales and purchases during
the month along with the amount of GST liability. Most elements of
GSTR-3 were supposed to be auto-generated from GSTR-1 and GSTR-2 while
the taxpayer had to include the details of discharge of liability of tax,
interest, penalty, refund claimed from electronic cash ledger and debit
entries in electronic cash/credit ledger while filing GSTR-3.
36 IFF is the Invoice Furnishing Facility, which allows small taxpayers (who file quarterly returns) to
upload their invoice every month.
37 With effect from 1 January 2022. Vide CBIC Notification No.40/2021-Central Tax, Dated 29.12.2021.
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However, owing to the unprepared GST ecosystem and complexity of return

forms, the originally envisaged key returns were postponed and a new simpler
temporary return, GSTR-3B, was introduced, initially for two months. GSTR-3B
was designed as a self-assessed summary return which captured a summary of
outward supplies and inward supplies liable to reverse charge. As a result, ITC
would now be settled based on these self-assessed summary returns filed by
taxpayers. The originally envisaged system verified flow of ITC at the invoice
level was kept in abeyance, thus rendering the system more prone to ITC
frauds.
New Return mechanism
The GST Council in its 27th meeting (May 2018) approved the broad principles
for the design of the new simplified return filing system. In May 2019, a
prototype of the offline tool was shared on the GST portal to give the look and
feel of the new return forms to the taxpayers and from July 2019, the taxpayers
were able to upload invoices on trial basis for familiarisation.
The GST Council in its 28th meeting (July 2018) decided that the new return
mechanism would be implemented with effect from 1 January 2019. Later, in
its 31st meeting, the GST Council (December 2018) extended the rollout date
and decided to implement the new return forms in a phased manner so that
from January 2020 onwards, all taxpayers would be filing returns as per the
new return mechanism, and Form GSTR-3B, introduced as a temporary return,
would be completely phased out. The GST Council again extended the date of
roll out of the new return system in its 37th meeting (September 2018) and
decided that the new return system shall be introduced from 1 st April, 2020
onwards. In the 39th GST council meeting (March 2020), the implementation
of the new return system was further deferred up to September 2020.
Subsequently, the GST Council, in its 42nd meeting (October 2020), has decided
not to roll out the proposed new return system in one go. The Council has
decided to incrementally incorporate the features of the new return system in
the present familiar GSTR-1/GSTR-3B scheme. It was envisaged that the new
approach would allow the taxpayer to view ITC available in his electronic credit
ledger from all sources i.e. domestic supplies, imports and payments on
reverse charge etc. prior to the due date for payment of tax, and enable the
system to auto-populate return (GSTR-3B) through the data filed by the
taxpayer and all his suppliers.
The salient features of the proposed return filing system are as follows:
1. Filing of FORM-GSTR-1 to be mandatory before filing of return in FORM
GSTR-3B;
2. Filing of GSTR-1 to be sequential;
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3. No two-way communication between the supplier and the recipient

while filing return;
4. Provision of furnishing of details of inward supplies to be removed,
instead FORM-GSTR-2B (invoice level data auto-populated from GSTR-
1, GSTR-538 and GSTR-639) shall be made available to recipients;
5. Restrictions in ITC to extend where details of the Input Tax Credit of
such supplies have not been communicated to the registered persons.
Accordingly, Returns Enhancement and Advance Project (REAP) was
undertaken by the Government under which:
• Auto-drafted Input Tax Credit statement in GSTR-2B, based on GSTR-1,
GSTR-5 and GSTR-6, had been made available to the taxpayer with
effect from August 2020 containing all data regarding ITC available
based on B2B supplies received from other registered persons, imports
of goods, Input Service Distributer (ISD) and Reverse Charge
Mechanism (RCM) supplies.
• Auto-population of ITC and liabilities in GSTR-3B return from GSTR-2B
and GSTR-1 had been started with effect from December 2020.
• E-invoice had been made mandatory for taxpayers with turnover more
than ` 500 crore with effect from 1st October 2020 for B2B transactions
and for export invoices.40 Data from e-invoice is being auto populated
in GSTR-1 of the taxpayer, which in turn is being used to auto-populate
GSTR-3B returns.
• Quarterly return with monthly payment (QRMP) scheme for taxpayers
having aggregate turnover up to ` 5.00 crore was introduced with
effect from 1 January 2021, providing for option for filing of returns on
quarterly basis, instead of monthly basis.
Audit examined the current status of return filing system and is of the opinion
that additional steps need to be taken to fully address the issue of non-
intrusive e-tax system and system-verified flow of ITC based on the principles
of invoice matching. The originally envisaged41 return system provided for
electronically generated monthly return (Part A of GSTR-3) of the taxpayers
based on tax liability declared by them and system-verified ITC available to
them. The current system, although providing for auto-population of tax
liability and eligible ITC in the monthly return, allows for changes in the auto-
populated amounts without any limit, leaving room for either mistakes or
38 Details of invoices furnished by non-resident taxpayers.

39 Details of invoices furnished by an Input Service Distributor.
40 The threshold for mandatory issuance of e-invoice had been reduced to Rs. 50 crore from 1st April
2021.
41 Section 39 (1) of CGST Act, 2017. And Rule 60 of the CGST Rules, 2017.
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deliberate misstatements by the taxpayers. Further, the filing of GSTR-1 is yet

to be made mandatory before filing of GSTR-3B by the taxpayer. As a result,
the objective of auto-population of tax liability and available ITC in the monthly
return cannot be achieved where GSTR-1 has not been filed. For example,
unless GSTR-1 is filed by a taxpayer, his tax liability will not be available for
auto-population in his monthly return (GSTR-3B). Similarly, unless GSTR-1 is
filed by a supplier, eligible ITC will not be available for auto-population in GSTR-
2B and monthly return of the recipient taxpayer.
Thus, the originally envisaged non-intrusive e-tax system, based on preventive
checks, is yet to be fully implemented. This shortcoming is being compensated
through the Department’s more traditional intrusive functions requiring tax-
officer-taxpayer interface. Notification 94/2020 dated 22 December 2020 is an
example in this regard where a new sub-rule 2A has been inserted in Rule 21A
of the Central Goods and Services Tax (CGST) Rules vide which if any significant
differences or anomalies are observed between GSTR-3B and GSTR-1/2B, tax
officers can suspend the GST registration of the taxpayer without affording a
reasonable opportunity of being heard.
When pointed out by Audit (January 2022), the Ministry stated (February 2022)
that efforts were being made to achieve a less-intrusive e-tax system. Ministry
informed that a number of amendments have been proposed in the CGST Act,
2017 vide Finance Bill 2022 to align with the present return filing system.
Section 39 of the CGST Act, 2017 has been proposed to be amended in the
Finance Bill, 2022 to provide for mandatory requirement of filing of GSTR-1
before GSTR-3B return for a tax period. Further, amendment to section 37 of
CGST Act, 2017 has been proposed in the Finance Bill 2022 to make filing of
GSTR-1 sequential i.e. a taxpayer will not be able to file GSTR-1 unless the
earlier period GSTR-1 returns have been filed.
Ministry also stated that, in view of genuine differences between the ITC as
per books of the taxpayer and ITC auto-populated in GSTR-3B, the values in
auto-populated GSTR-3B have been kept editable. The GST Portal highlights
such fields of GSTR-3B and a warning message appears, where a taxpayer avails
more ITC than the auto-populated value, to keep a check on mistakes/
misstatement by the taxpayers.
Audit has noted the constraints highlighted by the Ministry in making auto-
populated tax liability and ITC amounts non-editable in the monthly return
(GSTR-3B). Audit, however, is of the view that the Ministry may rely more on
preventive checks that are enforced through IT systems, by taking steps to limit
editing of auto-populated tax liability/ITC amounts, as originally envisaged,
rather than relying on post-facto intervention by the tax offices in safeguarding
Government revenue.
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3.2 Scrutiny of Returns under GST
Section 61 of the Central Goods and Services Tax Act, 2017 stipulates that the
proper officer may scrutinize the return and related particulars furnished by
the taxpayers to verify the correctness of the returns and information. Under
Rule 99 of the Central Goods and Services Tax Rules, 2017, discrepancies
noticed if any, shall be communicated to the taxpayer for seeking his
explanation. If the explanation offered is found acceptable by the proper
officer, the proceeding shall be dropped, the taxpayer shall be informed and
no further action in the matter shall be taken. If, however, the taxpayer
• does not furnish a satisfactory explanation within 30 days of being
informed (extendable by the proper officer), or
• does not take any corrective action in his return in which discrepancy is
accepted,
the proper officer may initiate appropriate actions including adjudication
proceedings for determining the tax liability under section 73 or section 74.
In the Audit Report No. 1 of 2021 on Goods and Services Tax, Audit had
observed that CBIC was yet to put in place an effective system of scrutiny of
returns based on detailed instructions/standard operating procedure/manual
for the tax officers. Therefore, an important compliance function of the
department, as mandated by law, was yet to be effectively rolled out even
after three years of GST implementation.
Ministry informed42 (August 2021) that the report of the Committee,
constituted to suggest guidelines for scrutiny of GST returns, was under
examination. However, the department had been using data analytics and
information technology system-based tools to identify deviant behaviour.
Inconsistencies between various returns of the taxpayers are being analysed
and red flag reports are being generated by GSTN as well as the Directorate
General of Analysis and Risk Management (DGARM) in respect of defaulting
taxpayers. These reports are being shared with the tax officers for verification.
Ministry further informed that efforts were being made to put in place a risk-
based standardised system of return scrutiny within the next six months.
It may be pertinent to mention that section 73 of CGST Act, 2017 provides that
where it appears to the proper officer that any tax has not been paid or short
paid or erroneously refunded, or where input tax credit has been wrongly
availed or utilised for any reason, other than the reason of fraud or any wilful-
misstatement or suppression of facts to evade tax, he shall serve notice on the
42 In reply to Hon’ble Public Accounts Committee queries on Audit Report No.1 of 2021
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person chargeable with tax which has not been so paid or which has been so
short paid or to whom the refund has erroneously been made, or who has
wrongly availed or utilised input tax credit, requiring him to show cause as to
why he should not pay the amount specified in the notice along with interest
payable thereon under section 50 and a penalty leviable under the provisions
of this Act or the rules made thereunder. The proper officer shall issue the
order within three years43 from the due date for furnishing of annual return
for the financial year to which the tax not paid or short paid or input tax credit
wrongly availed or utilised relates to, or within three years from the date of
erroneous refund.
The due dates for filing of annual returns for FY 18, FY 19 and FY 20 were 5/7
February 2020, 31 December 2020 and 31 March 2021, respectively. Almost
two years have passed (January 2022) since filing of annual returns for FY 18
and more than one year since filing of annual return for FY 19. As a result, the
time available for issuance of notice and recovery of revenue in cases of
non/short payment of tax has already shrunk to that extent.
In view of the above, Audit agrees with the Ministry’s response and
recommends that an effective risk based standardised system of returns’
scrutiny (with detailed instructions/standard operating procedure) should be
implemented at the earliest and certainly within the period of six months
indicated by the Ministry so that the Department has sufficient time to take
action against non-compliant taxpayers before time-barring of cases as per
law. Such a scrutiny should involve risk-based selection of returns for
scrutiny, and the results of the scrutiny (similar to scrutiny assessment in
respect of income tax) should also be captured in real-time through the CBIC-
GST System to ensure transparency and minimize arbitrariness.
When Audit pointed this out (December 2021), Ministry, while accepting the
audit recommendation, stated (February 2022) that scrutiny of returns based
on detailed instructions/standard operating procedure is under active
consideration and the proposed scrutiny process is envisaged to have risk-
based selection of returns and is proposed to include a robust monitoring
system to ensure transparency and fairness.
43 Five years in cases of any wilful-misstatement or suppression of facts to evade tax under Section 74
of the CGST Act, 2017.
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3.3 Monitoring mechanism with respect to Directorate General of

Analytics and Risk Management (DGARM) Reports
CBIC constituted44 (July 2017) the Directorate General of Analytics and Risk
Management (DGARM) with the aim to study, interpret and analyse indirect
tax data and share the outputs with various stakeholders. The DGARM is an
attached office of the Central Board of Indirect Taxes and Customs and reports
to Chairman, CBIC through Member (Investigation). The Directorate General
became functional in June 2018 and analyses data relating to Customs, Central
Excise and Goods and Services Tax.
Working of DGARM
DGARM identifies high risk taxpayers through use of extensive data analytics
on the GST returns data received from GSTN and DG Systems, and Income Tax
return (ITR) data received from CBDT. The list of high risk taxpayers is shared
with the CBIC field formations through various analytical reports on the
Directorate of Data Management (DDM) portal for action.
On completion of action, CBIC field formations upload feedback on the
respective DGARM reports incorporating details regarding detection and
recoveries from the identified high risk taxpayers.
Data analysis methodology/parameters in respect of the reports uploaded on
the DDM portal were requested (September 2021) by Audit. The Department
did not provide the same and intimated (September, 2021) that the
instructions were confidentially shared with the field formations in PDF
format. As a result, Audit could not examine the risk parameters and
methodology used by DGARM.
When pointed out by Audit (January 2022), Ministry replied (February 2022)
that these reports are in effect intelligence reports for targeted enforcement
by the field formations against identified taxpayers and therefore, are
confidential in nature and cannot be shared.
The Ministry’s reply is not acceptable. Non-production of data analysis
methodology/parameters impedes CAG’s Constitutional and statutory
responsibility under section 16 of the CAG’s DPC Act, 1971 to examine whether
rules and procedures are designed to secure effective check on the assessment
and collection of revenue. In particular in respect of cases where the feedback
is reported on the DDM portal and action is completed, detailed granular data
must be shared with Audit, and cannot be withheld on grounds of
confidentiality.
44 Vide Office Memorandum F. No. A-11013/19/2017-Ad.-IV dated 11.07.2017
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Standard Operating procedure for “Risky Tax Payers” and others

The Board had issued (April 2019) a Standard Operating procedure (SOP)
regarding the modalities of taking action by its field formations in respect of
GSTINs identified by DGARM. The SOP also provides the manner in which the
Jurisdictional Range, after receiving the GSTINs from the Jurisdictional
Assistant/Deputy Commissioner, would approach the taxpayer, as follows:
1. The Range would send an e-mail to the taxpayer explaining the reasons
as to why he was being communicated and, where applicable, clearly
indicate the nature of discrepancy in payment of tax or filing of returns
etc.
2. If no or an unsatisfactory response is received from the taxpayer, the
Range would issue a letter by speed post to the taxpayer. If a
satisfactory response was still not forthcoming within the next 15 days,
or if the letter is returned by the Postal Department for any reason, the
Range Officer shall bring the matter to the notice of Assistant/Deputy
Commissioner. After weighing the facts, the Range Officer or
preventive Branch may visit the principal place of business of the
taxpayer after due authorisation.
Audit noticed that the Standard Operating Procedure (SOP) dated 30 April
2019 makes only an incidental reference to the provisions of the CGST Act as
follows:
“The provisions of Chapter XII of CGST Act, 2017 regarding scrutiny of returns
(Section 61), assessment of non-filers of returns (Section-62), assessment of
unregistered persons (Section 63) and summary assessment in certain special
cases (Section 64), should be adhered while examining these taxpayers”.
In the vast majority of cases (i.e. other than assessment of non-filers,
assessment of unregistered persons, and summary assessment in special
cases), the provisions of the SOP appear to refer (although not explicitly stated)
to the detailed procedures to be followed under Section 61 – Scrutiny of
Returns.
In Audit’s opinion, this SOP should explicitly flow from, and state clearly and
transparently, the specific provisions of the CGST Act that are being
implemented through the SOP.
Further, the use of a manual/ semi-automated mechanism for taxes and
monitoring action in respect of Risky Taxpayers identified by DGARM instead
of an IT workflow based functionality is sub-optimal as it significantly reduces
the level of transparency and visibility for jurisdictional actions and fails to
properly leverage the full power of information technology. The current
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system of just uploading feedback post-facto onto the CBIC-DDM Module and
not conducting all actions in real-time through the IT system is not adequate.
When pointed out by Audit (January 2022), the Ministry stated (February 2022)
that the SOP dated 30 February 2019 was updated by the SOP dated 12 July
2021. Ministry further stated that the SOP provides a broad template on how
to process the lists of risky taxpayers shared by DGARM. The SOP is not meant
to act as a statutory underpinning, but is merely a broad guideline on dealing
with the taxpayers identified by the DGARM for verification. Ministry’s reply is
not acceptable in view of the fact that the SOP makes only an incidental
reference to the provisions of the CGST Act and, in the absence of clarity
regarding the statutory provisions under which the Department is required to
take action (in particular, scrutiny under section 61 of the CGST Act, 2017), may
lead to different interpretations by various field formations. Further, the
updated SOP of July 2021 also lacks clarity and makes only an incidental
reference to the provisions of the Act, as in the SOP dated 30 February 2019.
Audit strongly recommends that the entire set of activities should be end-to-
end automated as part of the CBIC-GST platform. The automated generation
of emails to the identified taxpayers should take place through such a module.
Responses from taxpayers should similarly be part of (or seamlessly inter-
forced) with this module; issue of emails, auto-generated speed post letters,
or automated SMSs, could take place through this system; the results of formal
visits (after appropriate online authorisation) to the principal place of business
of the taxpayer; and thereafter the ultimate feedback/ conclusion as a result
of the risky taxpayers’ identification should be done in real-time through this
module. Such an end-to-end automated module would facilitate transparency
and effective real-time monitoring.
The Ministry should also fix timelines for completion of verification by the field
formations, and automatic tracking against such timelines. No such detailed
timelines have been defined. This issue was also highlighted in the Board’s
letter of February 201945 wherein it was noted that there were
Commissionerates in the five zones who had not uploaded a single feedback.
When pointed out by Audit (January 2022), Ministry stated (February 2022)
that the web application of DGARM is fully automated where reports
containing the details of risky entities are shared with field formations and
after completing the action, the field formations upload GSTIN-wise feedback
on DGARM portal immediately upon achieving key milestones indicated in sub-
head/heads of feedback. Thus, the application helps in real time monitoring of
action taken on risky taxpayers identified under various reports. Ministry, with
45 D.O.F. No. DGACR/tech/Analytic/206/2018 dated 22 February 2019
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respect to fixing timelines for completion of verification by the field

formations, stated that though no timeline is provided in the SOP dated
30.04.2019, the feedback is examined from time to time and reminders issued
to the field for timely compliance.
The reply is not acceptable as the existing semi-automated mechanism
remains sub-optimal and fails to properly leverage the full potential of IT. Many
actions, like correspondence with the identified taxpayers do not take place
through the DGARM portal. Thus, there is a need for end-to-end automation
of the entire set of activities related to verification (or scrutiny, when this is
notified) for increased efficiency and transparency.
Monitoring and feedback mechanism – Audit observations
Audit noticed that a feedback view module has been created in the DDM portal
to monitor the feedback on GSTINs/PANs shared under various analytical
reports with the field formations. It provides the current status of report-
wise/GSTIN-wise detection and recovery. It also enables the officers at various
levels to monitor the quality of the analytical reports, time taken to act and
pendency at the field level.
The Department was requested to provide the details of the 177 reports
uploaded on the DDM portal. In reply, DGARM provided only the summary of
177 reports under 40 theme-wise Report IDs. As per the details provided,
DGARM uploaded 4, 82,587 GSTINs and feedback from field formations was
received in respect of 3, 71,898 GSTINs (77 per cent). Further, the Department
detected non/short payment of tax dues of ` 2, 16,313 crore, based on these
177 reports, and recovered ` 1, 96, 355 crore from the taxpayers.
Since the details of 177 reports were not provided, Audit could not examine
the efficacy of feedback mechanism in terms of time taken by the CBIC field
formations and pendency of action, if any. However, on examination of the
summary of 40 theme-wise reports, Audit observed the following:
(i) In respect of 13 Report IDs46, the feedback was pending in more than 50 per
cent cases as on September 2021, ranging from 52 per cent to as high as 95 per
cent. Under these 13 report IDs, DGARM had forwarded 47,301 GSTINs during
46 Titles of
13 Reports are: Analysis of importers not declaring GSTIN in Bill Entry, Analysis of tax payment
by top 500 taxpayers-PANs (in terms of Cash payment), Analysis of taxpayers profiled on the basis of
data exchange between CBDT-CBIC-GSTN, Multiple registrations linked with PAN, Analysis of taxpayer
with inordinately skewed tax behaviour, Analysis of GSTINs who have filed GSTR-1 but not filed GSTR-
3B or nil filed and also not shown in GSTR 2A, Verification of first stage (L1) or second stage (L2)
suppliers of identified risky exporters, Regarding the lists of the taxpayers who have passed on
wrongful ITC/ineligible ITC, Analysis of Exporters who have claimed refunds after exporting
Goods/services under LUT/Bond and export of services with payment of duty, Monitoring of pending
verification of risky exporters, Comparison of ITC claimed in reverse charge mechanism with the
declared inward supply, Verification of new registration applicable by CGST authorities, Analysis of
GSTIN's who have been supplying taxable as well as exempted supplies but have not reversed any ITC
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February 2019 to August 2021. Out of these, the Department had submitted
feedback in respect of only 12,242 cases with detection of ` 12,676 crore and
recovery of ` 8,736 crore. Feedback in respect of 35,059 GSTINs was pending.
In the absence of details, Audit could not ascertain the extent of delays.
(ii) In respect of two report IDs pertaining to ‘monitoring of pending
verification of risky exporters47’ and ‘ITC frauds48’, the feedback was pending
in 95 per cent cases each. In these two reports, DGARM shared the list of 7062
GSTINs since January 2021, and 2,856 GSTINs since September 2021. The field
formations had submitted feedback in respect of only 334 GSTINs pertaining
to monitoring of pending verification of risky exporters’ as of September, 2021.
In the absence of details, Audit could not ascertain the extent of pendency.
When pointed out by Audit (January 2022), Ministry stated (February 2022)
that, in respect of ‘ITC frauds’ reports, DGARM had asked (September 2021) all
the Zones to get the compliance expedited from the respective
Commissionerates.
Recommendations
1. In the absence of an effective risk-based system of scrutiny of returns

with statutory backing based on detailed instructions/standard
operating procedure, the Department is relying on DGARM inputs to
discharge its compliance verification functions. Thus, in order to give
assurance on Department’s performance, Audit needs access to data
analysis methodology/parameters in respect of the DGARM reports
along with the detailed reports, in particular in respect of cases where
feedback is already provided. Audit recommends that such access to
the records and information pertaining to DGARM reports may be
provided without delay so that CAG’s constitutional and statutory
duties could be discharged.
2. Though the DGARM reports and the action taken by the field
formations on these reports are being uploaded on the DDM portal,
detailed action taken by the field formations on these reports like
correspondence with the taxpayer to explain the nature of
discrepancy noted and to take taxpayers’ response on the same is still
being done manually/offline. Audit recommends that the entire set
of activities should be end-to-end automated as part of the CBIC-GST
47 Monitoring of pending verification of risky exporters

48 Analysis of GSTIN's who have been supplying taxable as well as exempted supplies but have not
reversed any ITC
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platform to facilitate transparency and effective real-time

monitoring.
3. Audit recommends fixing of timelines in which the Department
offices should complete action on the DGARM reports, against which
progress can be monitored.
3.4 Internal Audit under GST
3.4.1 Internal audit of GST Units
Internal Audit49 helps to assess the level of compliance by taxpayers in the light
of the provisions of the Goods and Services Tax Act and rules made thereunder.
The Board had issued detailed procedure of Internal Audit in the form of Goods
and Services Tax Audit Manual (GSTAM) in July 2019. The internal audit
provisions of the Department envisaged selection of taxpayers based on risk
assessment, using GST data, done by the Director General of Analytics and Risk
Management (DGARM). The financial year for the purpose of internal audit is
from July to June in respect of Central Excise and Service Tax, and from April
to March in respect of GST.
Section 2 (13) of the CGST Act, 2017, defines “Audit” as the examination of
records, returns and other documents maintained or furnished by the
registered person under this Act or the rules made thereunder or under any
other law for the time being in force to verify the correctness of turnover
declared, taxes paid, refund claimed and input tax credit availed, and to assess
his compliance with the provisions of this Act or the rules made thereunder”.
The details of internal audit undertaken by the Department during 2019-20
and 2020-21 for GST are as under: -
Table 3.1: Total detection made vis-à-vis units audited by Internal Audit (GST)
Amount in ` crore
Year Category Total units Total units Short levy Total Recovery as
planed audited detected Recovery % of total
Detection
Large Units 17,172 244 65.51 9.42 14
Medium Units 18,050 296 15.31 8.06 53
2019-20
Small Units 19,920 318 14.72 1.81 12
Total 55,142 858 95.54 19.29 20
Large Units 17,929 2816 1623.95 291.94 18
Medium Units 18,257 4405 510.44 138.05 27
2020-21
Small Units 19,728 4781 346.84 83.57 24
Total 55,914 12,002 2,481.23 513.55 21
Source: Monthly Progress Report of the Department.
49 Section 65 of CGST Act, 2017
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Report
ReportNo.
No.55of
of2022
2022(Indirect
(IndirectTaxes
Taxes–̶ Goods
Goods and
and Services
Services Tax)
Tax)
As is evident from the above table, the number of units audited during FY 20
and FY 21, respectively, were 1.56 per cent and 21.47 per cent of the total units
planned. Although there has been a substantial increase in the percentage of
units audited in FY21, there is still a huge gap between the numbers of units
planned and audited.
The total recovery effected was 20 per cent and 21 per cent of the amount
detected in Internal Audit during FY20 and FY21, respectively.
When pointed out (January 2022), Ministry stated (March 2022) that due to
the extension of due date of filing of annual returns, less number of taxpayers
were available for audit during 2019-20 and 2020-21. Ministry further stated
that there was shortage of officers in the Audit Commissionerates, especially
in the grade of inspectors whose working strength was less than 50 per cent of
the sanctioned strength in most of the Audit Commissionerates. Non-
cooperation by the taxpayers in providing documents and Covid-19 pandemic
were also cited by the Ministry as the reasons for low coverage of units in
internal audit.
As regards low recovery in internal audit, Ministry stated that many taxpayers,
especially large units, legally contested the internal audit findings through
appeal/litigation resulting in low recovery. Ministry further stated that due to
Covid-19 pandemic, many business units faced liquidity crunch, resulting in
lack or shortage of funds for tax compliance during internal audit.
In the era of self-assessed tax regime, internal audit is one of the main tools
for ensuring compliance by the taxpayers. Further, departmental action
against non-compliant taxpayers is a time bound activity under section 73 of
CGST Act, 2017. Audit, therefore, recommends that suitable administrative
measures should be taken to address the shortage of staff in Audit
Commissionerates. Till the time man-power shortage is addressed, the
Department may take into account the available staff strength for planning
the number of units for internal audit with focus on high risk taxpayers.
3.4.2 Internal audit of Central Excise and Service Tax Units
The details of internal audit undertaken by the Department during 2018-19,

2019-20 and 2020-21 for the Central Excise and Service Tax units is as under:
28
28
Table 3.2: Total detection made vis-à-vis units audited by Internal Audit (CX &ST)
Amount in ` crore
Year Category Total units Total units Short Total Recovery % of
planed audited levy Recovery as % of units
detected total audited
Detection
2018-19 Large Units 9,204 6,159 5,149 1,419 28 67
Medium Units 16,991 12,191 2,120 721 34 72
Small Units 40,756 26,441 1,517 638 42 65
Total 66,951 44,791 8,786 2,778 32 67
2019-20 Large Units 6,361 3,432 8,429 519 6 54
Medium Units 12,075 6,678 1,698 365 21 55
Small Units 35,383 21,649 1,210 412 34 61
Total 53,819 31,759 11,337 1,296 11.43 59
2020-21 Large Units 4,075 1,421 5,532 185 3 35
Medium Units 7,758 2,106 1,017 118 12 27
Small Units 27,630 8,860 468 124 27 32
Total 39,463 12,387 7,017 427 6 32
Source: Monthly Progress Report of the Department.
It is observed that the coverage of internal audit of units declined from

67 per cent in FY19 to only 32 per cent of the planned units in FY21.
Further, there was a continuous decline in the recovery effected at the
instance of internal audit as percentage of the amount detected during last
three years. The total recovery decreased from 31.63 per cent in FY19 to only
6.10 per cent of the amount detected in FY21. Recovery as percentage of total
detection in large units decreased from 28 per cent in FY19 to only
three per cent in FY21.
When pointed out (January 2022), Ministry attributed (March 2022) low
coverage of internal audit during 2020-21 to shortage of staff and paucity of
time caused by the Covid-19 pandemic.
As regards low recovery in internal audit, Ministry stated that due to Covid-19
pandemic, the taxpayers found it difficult to deposit money required to
discharge their tax liability detected during internal audit. The difference in
opinion related to issues raised in internal audit paras and taxpayers legally
contesting such paras also contributed to low percentage of recovery.
3.5 Anti-Evasion functioning of DGGI
Directorate General of Goods and Service Tax Intelligence-DGGI (formerly

Directorate General of Central Excise Intelligence (DGCEI)) as well as the Goods
and Service Tax Commissionerates have well-defined roles in the task of
detection of cases of evasion of Goods and Services Tax, Central Excise duty
29
29
Report
Report No.
No. 5
5 of
of 2022
2022 (Indirect
(Indirect Taxes
Taxes –– Goods
Goods and
and Services
Services Tax)
Tax)
Report No. 5No.
Report of 2022 (Indirect
5 of 2022 Taxes
(Indirect ̶ Goods
Taxes andand
– Goods Services Tax)
Services Tax)
and
and Service
Service Tax.
Tax. While
While the
the Commissionerates,
Commissionerates, with with their
their extensive
extensive database
database ofof
units and
in Service
their Tax. While
jurisdiction the
and Commissionerates,
presence in the with
field, their
are the extensive
first line
units in their jurisdiction and presence in the field, are the first line of defencedatabase
of defenceof
units
against in their
duty jurisdiction
evasion, and presence
DGGI specialises
specialises in in the field,specific
collecting are the first line of defence
intelligence about
against duty evasion, DGGI in collecting specific intelligence about
against
evasion duty evasion, DGGI specialises in collecting specific intelligence about
evasion ofof substantial
substantial revenue.
revenue. The
The intelligence
intelligence soso collected
collected isis shared
shared with
with the
the
evasion of substantial
Commissionerates. revenue. are
Investigations The also
intelligence so collected
undertaken by DGGI is in
shared
cases with the
having
Commissionerates. Investigations are also undertaken by DGGI in cases having
all Commissionerates. Investigations are also undertaken by DGGI in cases having
all India
India ramifications.
ramifications.
all India ramifications.
Table 3.3
TableTable below depicts
3.3 below depicts the
the performance
performance of of DGGI
DGGI and GST
GST Commissionerates
3.3 below depicts the performance of DGGIand
and GSTCommissionerates
Commissionerates
in terms
in terms of
of number
number and
and amount
amount ofof cases
cases detected
detected and
and voluntary
voluntary payments
payments
in terms of number and amount of cases detected and voluntary payments
made by
made by the
the taxpayers
taxpayers during
during last
last five
five years.
years.
made by the taxpayers during last five years.
Table 3.3
3.3 Anti-evasion
TableTableAnti-evasion performance of
performance of DGGI and
and GST
GST Commissionerates
Commissionerates during 2016-17
2016-17 to to
3.3 Anti-evasion performance DGGI
of DGGI and GST Commissioneratesduring
during 2016-17 to
2020-21
2020-21
2020-21
(`
`` in
`
(`
(` in crore)
in crore)
Year
Year Year Central Excise
CentralCentral
ExciseExcise Service Tax
Service
Service Tax Tax Goods and
Goods
Goods Services
andand Tax
Services
Services TaxTax Total
Total
Total
No.
No. Amt.
No. VP*
VP* VP*No.
Amt. Amt. No. No. Amt.
Amt.Amt. VP*
VP*VP* No.
No.No. Amt.
Amt.
Amt. VP*
VP*
VP* No.
No.
No. Amt.
Amt.
Amt. VP*
VP*
VP*
2016-17 2,122
2016-172016-17 5,773
2,122 2,122 382
382 3828,085
5,773 5,773 8,0858,08517,846
17,846 2,067--
17,846 2,067
2,067 -- -- --
-- -- --
-- -- 10,207
10,207 23,619
10,207 23,619
23,619 2,449
2,449
2,449
2017-182017-18
2017-18 894
894 8946,414
6,414 6,414
203 2035,299
203 5,2995,29924,201
24,201 2,549
24,201 2,549233
2,549 233233 8,071 7,437
8,071
8,071 7,437 6,426
7,437 6,426
6,426 38,686
38,686
38,686 10,189
10,189
10,189
2018-19
2018-19 9934,218 4,218 3805,5075,50732,902
32,902 2,771
2,771 3,784 31,273
31,273 8,646 10,284
10,284 68,393 11,797
2018-19 993
993 4,218 380
380 5,507 32,902 2,771 3,784
3,784 31,273 8,646
8,646 10,284 68,393
68,393 11,797
11,797
2019-20
2019-20 6108,594 8,594 2313,8393,83920,451
20,451 1,156
1,156 4,865 26,517
26,517 12,803 9,314
9,314 55,562 14,190
2019-20 610
610 8,594 231
231 3,839 20,451 1,156 4,865
4,865 26,517 12,803
12,803 9,314 55,562
55,562 14,190
14,190
2020-21
2020-21 1222,860 2,860 2311,1731,1738,9938,993 1,193
1,193 3,822 31,908
31,908 12,963 5,117
5,117 43,761 14,387
2020-21 122
122 2,860 231
231 1,173 8,993 1,193 3,822
3,822 31,908 12,963
12,963 5,117 43,761
43,761 14,387
14,387
Total 4,741 27,859 1,427 23,903 1,04,393 9,736 12,704 97,769 41,849 41,348 2,30,021 53,012
Total
Total 4,741
4,741 27,859
27,859 1,427
1,427 23,903
23,903 1,04,393
1,04,393 9,736
9,736 12,704
12,704 97,769
97,769 41,849
41,849 41,348
41,348 2,30,021
2,30,021 53,012
53,012
*Voluntary Payment
*Voluntary Payment
*Voluntary Payment
Chart No. 3.1 Amount of cases detected through anti-evasion activities
Chart
Chart No.
No. 3.1
3.1 Amount
Amount of
of cases
cases detected
detected through
through anti-evasion
anti-evasion activities
activities (`` in crore)
(` in crore)
` in
(`
` crore)
Amount of cases detected (in crore of `)
Amount
Amount of
of cases
cases detected
detected (in
(in crore
crore of `))
of `
80000
80000 68,393
8000070000
68,393
68,393
70000
7000060000 55,562
60000 55,562
55,562
6000050000 38,686 43,761
50000
5000040000 38,686 43,761
43,761
38,686
40000
4000030000 23,619
3000020000 23,619
30000 23,619
10000
20000
20000
10000 0
10000
2016-17 2017-18 2018-19 2019-20 2020-21
0
0
2016-17
2016-17 2017-18
2017-18 2018-19
2018-19 2019-20
2019-20 2020-21
2020-21
As is evident from Table 3.3, for GST, there is an increase in the amount of
detection to the extent of 20 per cent from ` 26,517 crore to ` 31,908 crore,
As
As is evident
isduring
evident from
from Table 3.3, for
Table 3.3, for GST,
GST, there
there is
is an
an increase
increase inin the amount
amount of of
FY21, in comparison to the year FY 20. Overall, there is the
a decline in the
detection
detection to
to the
the extent
extent of
of 20
20 per
per cent
cent from
from `` 26,517
26,517 crore
crore to
to `` 31,908
31,908 crore,
crore,
during
during FY21, in comparison to the year FY 20. Overall, there is a decline in
FY21, in comparison to the year FY 20. Overall, there is a decline in the
the
30
30
30
30
amount of detection to the extent of 36 per cent from ` 68,393 crore during
FY 19 to ` 43,761 crore in FY 21.
The voluntary payments of ` 11,797 crore in 2018-19, ` 14,190 crore in
2019-20 and ` 14,387 crore were 17 percent, 26 per cent and 33 per cent of
total detection in the respective year, which showed an upward trend during
the last three years.
3.5.1 Nature of anti-evasion cases during FY21
The nature of anti-evasion cases detected by DGGI involving Central Excise,

Service Tax and GST during 2020-21 is highlighted in Table 3.4:
Table3.4: Nature of anti-evasion cases detected by DGGI
Sr. Central Excise Service Tax Goods and Services Tax
No. Nature % Nature % Nature %
1 Clandestine 42 Non-Payment of 74 Wrong 50
Removal Service Tax for availment/non-
providing taxable reversal of Input
Service Tax Credit
2 Misuse of 19 Non-Payment of 9 Non-payment of 24
Cenvat Scheme Service Tax under Tax on supply of
reverse charge taxable goods and
mechanism Service
3 Misclassification 10 Short Payment of 6 Tax collected but 4
service tax by not paid to Govt
undervaluing exchequer
taxable service
4 Undervaluation 7 Service tax 5 Short Payment of 3
collected but not Tax by
paid to Govt undervaluing
exchequer Taxable goods
and Service
5 Wrong 6 Misuse of Cenvat 2 Non-payment of 3
Availment of Credit Scheme Tax under Reverse
Exemption charge
Notification mechanism
6 Others 16 Others 4 Others 16
As could be seen from Table 3.4, clandestine removal, misuse of Cenvat

Scheme and misclassification formed the major portion of evasion activities
detected in Central Excise. As for Service Tax, non-payment of service tax for
providing taxable services, non-payment of service tax under reverse charge
mechanism and short payment of service tax by undervaluation of taxable
services formed the major portion of evasion activities detected.
Wrong availment/non-reversal of Input Tax Credit, non-payment of tax on
supply of taxable goods and services, and tax collected but not paid to
31
31

Government exchequer
Report No. 5 of 2022 (Indirect were
Taxes ̶ the major
Goods forms Tax)
and Services of detected
Report No. 5 of 2022 (Indirect Taxes – Goods and Services Tax) evasion activity
under GST during FY 21.
Government exchequer were the major forms of detected evasion activity
under Government exchequer were the major forms of detected evasion activity
3.5.2 GST during
Fresh casesFYtaken
21. up for investigation and disposals thereof
under GST during FY 21.
3.5.2
GST law Fresh cases taken
empowers upproper
thetakenfor investigation to and disposals thereof
3.5.2 Fresh cases up forofficer
investigation inspect, search,
and disposals seizure and
thereof
investigate to check the cases pertaining to evasion of duty and taxes. Number
GST law empowers the proper officer to inspect, search, seizure and
GST law cases
of investigation empowers the proper
pertaining to Goods officer to inspect,
and Services Taxsearch, seizure
and their and
disposal
investigate to check the cases pertaining to evasion of duty and taxes. Number
investigate
during 2017-18 to to check the
2020-21 arecases pertaining
detailed to evasion
in Table 3. 5. of duty and taxes. Number
of investigation cases pertaining to Goods and Services Tax and their disposal
of investigation cases pertaining to Goods and Services Tax and their disposal
during 2017-18
Table 3. 5 – to 2020-21
Investigation
during 2017-18
of casesare detailed
(Fresh
to 2020-21
cases) in Table
and
are detailed 3. 5.3. 5.
disposals
in Table
thereof
Table 3. 5Table
– Investigation of casesof(Fresh cases)cases)
and disposals thereof (`
` in crore)
3. 5 – Investigation cases (Fresh and disposals thereof
Opening Fresh cases Cases Closing Balance Closing
(`
`(`ìnincrore)
crore)
Total No. of
FY Description Balance as taken up for disposed as per Balance as
Opening Opening Fresh casesFresh cases cases CasesCases ClosingClosing Balance Closing
Balance Closing
per MPR Investigation ofNo. of offdisposed calculation
Total
Total No. per MPR
FY FY
Description Description
Balance as Balance as taken
taken up for up for as per Balance asas
Balance
cases cases disposed 23
as per
No. of cases per MPR 1 per MPR
50 Investigation
Investigation 217 218 off off calculation
calculation195 perMPR
per MPR
193
(10.55%) 23
2017-18 No. of cases 150 217 218 23 195 193
Duty
No. ofInvolved
cases 150 217 218 9.21
(10.55%) 195 193
2017-18 0.02 909 909 (10.55%) 900 900
2017-18 (`
` in crore)Duty Involved (1.01%)9.21
Duty Involved 0.02 909 909 9.21 900 900
(`` in crore) 0.02 909 909 491
(1.01%) 900 900
No.
(` of cases
` in crore) 193 2,980 3,173 (1.01%) 2,682 2,560
(15.47%) 491
2018-19 No. of cases 193 2,980 3,173 491 2,682 2,560
Duty
No. ofInvolved
cases 193 2,980 3,173 (15.47%)
520 2,682 2,560
2018-19 900 29,183 30,082 29,562 29,109
(15.47%) 520
2018-19 ` in crore)Duty Involved
(` 900 29,183 30,082 (1.73%) 29,562 29,109
Duty Involved(`` in crore) 520
(1.73%)
900 29,183 30,082 309 29,562 29,109
No.
` inofcrore)
(` cases 1,618 2,381 3,999 (1.73%) 309 3,690 3,690
No. of cases 1,618 2,381 3,999 (7.73%) 3,690 3,690
2019-20 (7.73%)
309
2019-20
DutyofInvolved
No. cases 1,618 2,381 3,999 1,208 3,690 3,690
Duty Involved19,732 21,365 21,365 41,09741,097 (7.73%)1,208 39,889 39,889
2019-20 (`
` in crore)(`` in crore) 19,732 (2.94%) 39,889 39,889
(2.94%)
Duty Involved 1,208
19,732 21,365 41,097 990 39,889 39,889
No.
` inofcrore)
(` cases
No. of cases 3,690 3,690 3,857 3,857 7,547 7,547 (2.94%) 990 6,557
6,557 6,557
6,557
(13.12%)
(13.12%)
2020-21 2020-21 990
Duty
No. ofInvolved
Duty Involved 3,690
cases 3,857 7,547 5,8595,859 6,557 6,557
39,889 39,889 32,947 32,947 72,83672,836(13.12%) 66,977
66,977 66,977
66,977
2020-21 ` in crore)(`` in crore)
(` (8.04%)(8.04%)
Duty Involved (Source: (Source:
MPRs i.e.,MPRs i.e., CEI-CE-5,
CEI-CE-5, CEI-ST-4CEI-ST-4 and CEI-GST-7
and CEI-GST-7
5,859
of theofDepartment)
the Department)
39,889 32,947 72,836 66,977 66,977
(`
` in crore) (8.04%)
As evident
(Source: As evident
MPRs from
i.e., from
the
CEI-CE-5, the table
table above,
CEI-ST-4 above, the
of theamount
the amount
and CEI-GST-7 involved
involved
Department) in in the
the casesdisposed
cases disposed
during the last four years remained very low (1.01 per cent to 2.94 per cent)
during the last four years remained very low (1.01 per cent to 2.94 per cent)
As evident
exceptfromforthe table
FY 21 whenabove, the amount
it was 8.04 per cent. involved in the 13
During 2020-21, cases disposed
per cent of the
except for FY 21 when it was 8.04 per cent. During 2020-21, 13 per cent of the
during the last four
pending casesyears
were remained
disposed-off very low (1.01toper
as compared cent
only to cent
8 per 2.94inper cent)
2019-20,
pending cases were disposed-off as compared to only 8 per cent in 2019-20,
except for FY 21
which whenan
involved it was
amount8.04ofper cent. crore
` 1,208 During in 2020-21,
2019-20 and13 per centcrore
` 5,859 of thein
which involved an amount of ` 1,208 crore in 2019-20 and ` 5,859 crore in
pending2020-21.
cases were disposed-off as compared to only 8 per cent in 2019-20,
2020-21.
which involved an amount
Further, Audit observed of mismatch
` 1,208 crore in thein 2019-20
Opening andand ` 5,859
Closing crore
Balance in
in the
Further, Audit observed
2020-21.number mismatch
of cases (122) in theinvolved
and duty Opening (` and
453 Closing
crore) to Balance in theof
the extent
numberfive of per
cases
cent(122)
and two and perduty
cent, involved
respectively, (` during
453 crore)
FY 19. to
Auditthealso
extent
observedof
Further, Audit observed mismatch in the Opening and Closing Balance in the
mismatch of 942 cases (2,560-1,618) in the closing balance
five per cent and two per cent, respectively, during FY 19. Audit also observed of cases as per MPR
number of cases (122) and duty involved (` 453 crore) to the extent of
mismatch of 942 cases (2,560-1,618) in the closing balance of cases as per MPR
five per cent and two per cent, respectively, during FY 19. Audit also observed
mismatch of 942balance
50 Opening casesof (2,560-1,618) in the
1 as per MPR at the time closing
of roll balance of cases as per MPR
out of GST.
50 Opening balance of 1 as per MPR at the time of roll out of GST.

32
50 Opening balance of 1 as per MPR at the time of roll out of GST.
32
32
32
FY19 and opening balance of MPR FY20 and duty mismatch ` 9,377
(29,109-19,732) in the closing balance of FY19 and opening balance of FY20.
Audit requested (January 2022) the Ministry/Board to indicate the reasons for
this mis-match. Reply of the Ministry/Board was awaited (February 2022).
3.5.3 Age-wise pendency of cases pending for investigation
Age-wise pendency of cases pending for investigation as on March, 2021 is

detailed in Table 3. 6.
Table 3. 6-Closing balance of investigation pending as on March, 2021
` in crore)
(`
More than 6 More than 1
Less than More than 2
Stream Total months but less year but less
6 months years
than 12 months than 2 years
Number of cases 67 15 2 16 34
Central Excise Duty involved 359 19 0.20 34 305
(`` in crore)
Number of cases 496 133 60 130 173
Service Tax Tax involved
(`` in crore) 2,283 259 265 420 1,339
Number of cases 6,557 2,800 821 1,882 1,054
Goods and
Tax involved 66,977 22,514 8,000 17,549 18,913
Services Tax
(`` in crore)
(Source: MPRs of the Department (CEI-CE-5, CEI-ST-4, CEI-GST-7)
As evident from table above, overall 6,557 cases relating to GST with tax
implication of ` 66,977 crore were pending for investigation as of March 2021
out of which 1,054 cases (16.07 per cent) with tax implications of ` 18,913
(28.24 per cent) crore were pending for more than 2 years.
Similarly, as regards Central Excise and Service Tax, 67 and 496 cases with tax
implication of ` 359 crore and ` 2,283 crore were pending for investigation as
of March 2021. 34 and 173 cases with tax implications of ` 305 crore and
` 1,339 crore were pending for investigation for more than 2 years.
Audit requested (January 2022) the Ministry to indicate the reasons for the
above mentioned trends in the pendency of cases. Reply of the Ministry was
awaited (February 2022).
3.6 Recovery of Arrears
Any amount recoverable from the taxpayer due to confirmation of demands

by virtue of Orders-in-Original (OIOs), Order-in-Appeal (OIA), Tribunal orders,
and Courts ’Orders or grant of stay applications with condition of pre-deposits,
becomes arrear.
33
33
The process of recovery of arrears starts with confirmation of demand against

the defaulter taxpayer and includes a number of appellate forums wherein the
taxpayer as well as the Department can go for appeal.
The main statutory provisions dealing with recovery of arrears in GST are
included in Section 79 of the Central Goods and Services Tax, 2017. As for
Central Excise and Service Tax, provisions are included in Section 11 of the
Central Excise Act, 1944 (which empowers Central Excise officers to take action
for recovery of arrears), Section 142 of the Customs Act, 1962 (which have
been made applicable in Central Excise cases, vide Notification No.68/63-
Central Excise dated 4 May 1963), and Section 87 of the Finance Act, 1994
(which empowers the Department to take action for recovery of arrears of
Service Tax).
3.6.1 Classification of arrears
Arrears are classified into two main categories viz. recoverable and
irrecoverable arrears. All stayed arrears are categorised as irrecoverable. The
recoverable arrears are further classified as restrained (Board for Industrial
and Financial Reconstruction (BIFR)/ Debt Recovery Tribunal/Official
Liquidator cases, pending applications for stay/ stay extension etc.),
unrestrained (Cases where action under section 11 of Central Excise Act,
1944/section 87 of Finance Act, 1994/section 142 of Customs Act, 1962 has
been initiated, Certificates sent to District Collector/other Customs-CE
formations etc.), and fit for write-off (viz., units closed/defaulters not
traceable/assets of company not available etc.). As per the Monthly
Performance Reports (MPRs), arrears are maintained under 1751 broad
categories.
3.6.2 Responsibilities for Recovery and Monitoring of Arrears
The Board monitors the overall functions and performance of the field
formations in recovery of arrears and fixes targets for the same. It also issues
periodical instructions to the field formations to tone up the recovery process.
Chief Commissioners bear the overall responsibility of monitoring and
supervising the recovery process under their respective zones.
Commissionerates are required to review and monitor the functions of
Divisional and Range officers in this regard. Besides, they should exercise the
51 CESTAT, High Court, Units closed/Defaulters, Arrears where appeal period not over, Official Liquidator
cases, Commissioner Appeal, Appeal period over (But no appeal filed), Units taken over by Financial
Institutions, Supreme Court, Section 87 of the Finance Act. 1994, BIFR Cases, Specify, if Any, Section
142 (c) (I)- Certificate Action with District Authorities, Arrears pending for write-off, Section 142 (c) (ii)
of the Customs Act, 1962.
34
34
functions for vacation of stay orders, filing for early hearing of CESTAT/Court
matters, taking action for attachment of property of defaulters and follow up
of cases pending in BIFR/DRT/OL etc. and watch progress and performance of
Recovery Cells through monthly progress reports and take follow up action.
Divisional Officers (Assistant/Deputy Commissioner) are entrusted with
supervising Range officers and to ensure that they are performing their duties
in accordance with the prescribed rules/regulations/instructions. Ranges are
the lowest level field formations entrusted with the task of maintaining the
records relating to arrears and appeals, initiating recovery process and
submitting reports to higher authorities.
In addition, the Recovery Cell operates under the supervision and control of
the jurisdictional Commissioner. The major functions of the Recovery Cell are
to serve notice upon defaulters, attachment and sale of defaulters’ property
by public auction. It is also required to send a monthly progress report to the
Commissionerate regarding arrears.
3.6.3. Pendency of arrears
The overall pendency of arrears during FY19, FY20 and FY21, as per the MPRs
of the department, is detailed in Table 3. 7:
Table 3.7: Overall Pendency of arrears of CX and ST
(Amount in crores of rupees)

March 2019 March 2020 March 2021
Tax
Number Amount Number Amount Number Amount
Central
51,957 86,551 44,548 83,351 38,071 80,301
Excise
Service
80,511 1,44,528 72,483 1,44,512 65,001 1,46,332
tax
Total 1,32,468 2,31,079 1,17,031 2,27,863 1,03,072 2,26,633
Source: Monthly Progress Reports (MPRs) of the respective years provided by the Ministry.
As evident from the table above, the amount of arrears of Central Excise
decreased (four per cent) from ` 83,351 crore in FY20 to ` 80,301 crore during
FY21. However, the amount of arrears of Service Tax marginally increased (one
per cent) from ` 1, 44,512 crore in FY20 to ` 1, 46,332 crore during FY21.
Audit requested (January 2022) the Ministry to indicate the reasons for lack of
significant improvement in the recovery of arrears of Central Excise and Service
Tax during the last two years. Reply of the Ministry was awaited (February
2022).
3.6.4 Pendency of arrears under different categories
Table 3. 8 below shows the pendency of arrears of Service Tax during FY19,
FY20 and FY21 under various categories:
35
35
Table 3. 8: Pendency of arrears of Service Tax under various categories

(Amount in ` crore)
S. No. Stream March 2019 March 2020 March 2021 Percentage
increase
No. Amount No. Amount No. Amount FY20 FY21

1 CESTAT 22,392 94,129.5 18,624 1,00,790.3 14,174 97,838.5 7 -3
2 High Court 3,103 12,292.6 2,534 12,987.61 2,099 15,377.3 6 18
3 Units 18,220 3,489.93 19,749 6,093.04 20,498 9,902.08 75 63
closed/Defaulters
4 Arrears where 7,723 19,341.5 4,961 7,586.07 6,958 7,669.52 -61 1
appeal period not
over
5 Official Liquidator 249 3,077.06 302 4,363.36 384 4,735.25 42 9
cases
6 Commissioner 12,193 4,231.58 10,446 4,152.19 7,355 3,030.48 -2 -27
Appeal
7 Appeal period 10,847 2,129.56 11,549 3,752.82 9,746 2,695.44 76 -28
over (But no
appeal filed)
8 Units taken over 187 2,321.35 181 1,825.65 178 1,899.47 -21 4
by Financial
Institutions
9 Supreme Court 179 2,024.28 174 1,609.52 168 1,672.92 -20 4
10 Section 87 of the 3,041 577.21 2272 600.87 1892 622.65 4 4
Finance Act. 1994
11 BIFR Cases 158 542.44 132 392.46 116 546.44 -28 39
12 Others52 2,219 370.63 1,559 357.83 1,433 342.01 -3 -4
Total 80,511 1,44,527.6 72,483 1,44,511.7 65,001 1,46,332.1 -0.01 1.25
* Source: Monthly Progress Reports (MPRs) of the respective years provided by the Ministry.
As can be seen from the table above, the majority (93 per cent) of the arrears
pertained to cases relating to CESTAT, High Courts, Units closed/Defaulters,
Arrears where appeal period was not over and Official Liquidator cases etc.
During FY 21, arrears under the category “Commissioner Appeal” and ‘Appeal
period over’ declined by 27 and 28 per cent. However, arrears under the
category “Units closed/Defaulters”, “BIFR Cases” and “High Court” increased
by 63, 39 and 18 per cent, respectively.
Audit requested (January 2022) the Ministry to ascertain the reasons for
significant increase in the arrears pertaining to “Units closed/Defaulters” and
other trends highlighted in the table above. Reply of the Ministry was awaited
(February 2022).
52 Arrears pending for write-off, JS (RA), Section 142 (c) (I) - Certificate Action with District Authorities,
Section 142 (c) (ii) - of the Customs Act, 1962 as made applicable to Central excise, Section 142 (c) (ii)-
of the Customs Act, 1962 as made applicable to Central excise, Settlement Commission (Cases decided
in settlement commission after expiry of 30 days) and Specify, if Any.
36
36
Table 3. 9 below shows the pendency of arrears of Central Excise during FY19,
FY20 and FY21 under the 17 categories
Table 3.9: Pendency of arrears of Central Excise under various categories
(Amount in ` crore)
S.No. Stream March 2019 March 2020 March 2021 Percentage
increase
No. Amount No. Amount No. Amount FY20 FY21
1 CESTAT 18,866 58,841 15,215 54,728 12,175 49,160 -7 -10
2 Units 9,796 7,826 9,564 10,209 9,949 10,540 30 3
closed/Defaulters
3 High Court 1,785 5,509 1,503 5,964 1,378 6,558 8 10
4 Arrears where 3,161 3,017 1,643 1,458 1,171 3,148 -52 116
appeal period not
over
5 Official Liquidator 2,627 1,773 2,722 2,595 2,855 2,567 46 -1
cases
6 Units taken over 2,091 1,878 2,043 2,360 1,919 2,225 26 -6
by Financial
Institutions
7 Supreme Court 385 2,084 303 1,362 280 2,059 -35 51
8 Commissioner 7,375 2,570 5,919 2,017 4,191 1,534 -22 -24
Appeal
9 BIFR Cases 1,220 1,052 1,160 1,185 939 1,412 13 19
10 Appeal period 1,605 1,254 1,799 548 1,069 490 -56 -11
over(But no
appeal filed)
11 Section 142 (c ) 489 181 366 352 250 246 95 -30
(ii)- of the
Customs Act,
1962 as made
applicable to
Central excise
12 Others53 2,557 567.22 2,311 574.21 1,895 362.00 1 -37
Total 51,957 86,552 44,548 83,352 38,071 80,301 -4 -4
As can be seen from the table above, the majority (90 per cent) of the arrears
pertained to cases relating to CESTAT, Units closed/Defaulters, High Court,
Arrears where appeal period was not over and Official Liquidator cases etc.
During FY 21, arrears under the category “CESTAT” and “Commissioner
Appeal” declined by 10 and 24 per cent. However, arrears under the category
“Arrears where appeal period not over”, “Supreme Court” and “BIFR Cases”
increased by 116, 51 and 19 per cent, respectively.
53 Arrears pending for write-off, Section 11 of the Central Excise Act,1944, Section 142 (c ) (I)- Certificate
Action with District Authorities, JS(RA), Settlement Commission (Cases decided in settlement
commission after expiry of 30 days) and Specify, if Any.
37
37
Audit requested (January 2022) the Ministry to ascertain the reasons for
significant increase in the arrears pertaining to “Arrears where appeal period
not over” and the other trends highlighted in the table above. Reply of the
Ministry was awaited (February 2022).
3.6.5 Achievement of the targets by the Field Formations
The Board sets the target for recovery of arrears for each year by its field
formations .The target is fixed as a percentage of pending arrears at the end
of the previous year i.e., closing balance of March of the previous financial
year .
For this purpose, DGPM-TAR54 calculates the consolidated target based on the
pendency of arrear under ‘recoverable category ’of the previous fiscal. DGPM-
TAR after approval from the Board allocates the consolidated targets among
CC55 zones.
The details of target and achievement by CBIC field formations, with respect
to recovery of Service Tax and Central Excise arrears, are provided below in
Table 3.10 :
Table 3.10: Targets and achievements with respect to recovery of arrears
(Amount in ` crore)
Year Stream Recoverable Target of Recovery / Achievement Shortfall in

arrear as of central Achievement (Percent) achievement
March excise and (Percent)
(Amount in ` service tax
crore) fixed
2019-20 CX 9,709 6,096* 4,943* 81 19
ST 6,558
Total 16,267
2020-21 CX 11,555 7,437* 5,057* 68 32
ST 10,793
Total 22,348
* Source: Monthly Progress Reports (MPRs) of the respective years provided by the Ministry.
Combined figures of Central Excise and Service tax have been provided. Separate figures
were not provided.
As evident from the table above, there was a shortfall in achievement in

targets fixed by the Board for its field formations for recovery of arrears.
During FY20, the shortfall in achieving the targets was 18.92 per cent, which
increased to 32.01 per cent in FY21.
Further, eight and 14 zones, out of total 21 zones, in respect of Central Excise
& Service Tax for the years 2019-20 and 2020-21, respectively, did not achieve
54 Directorate General of Performance Management – Tax Arrears Recovery

55 Chief Commissioner
38
38
the target for recovery of arrears. Shortfall in achievement of target in these
the target for recovery of arrears.
Report No. 5 ofShortfall in Taxes
2022 (Indirect achievement
– Goods and of target
Services Tax)in these
zones ranged from 1.94 per cent to 92.96 per cent and 1.82 per cent to
zones ranged from 1.94 per cent to 92.96 per cent and 1.82 per cent to
85.58 per cent for the years 2019-20 and 2020-21, respectively.
85.58 per cent
the target for theof
for recovery years 2019-20
arrears. andin2020-21,
Shortfall achievement respectively.
of target in these
Further, it was noticed that targets achieved
zones ranged from 1.94 per cent to 92.96 per cent and 1.82 by five and per
six cent
zones, to out of
Further, it was noticed that targets achieved by five and six zones, out of
21 zones
85.58 per of
centCentral
for theexcise and Service
years 2019-20 Tax Zones,
and 2020-21, respectively, were less than
respectively.
21 zones of Central excise and Service Tax Zones, respectively, were less than
50 per cent
Further, in FY20
it was noticedandthat
FY 21 (Appendix-II)
targets achieved .by five and six zones, out of
50 per cent in FY20 and FY 21 (Appendix-II).
21 zones of Central
Information/ excise and Service
data regarding Tax Zones,
GST arrears was notrespectively,
providedwere less than
to Audit by DGPM,
Information/ dataand
50 per cent in FY20 regarding GST arrears
FY 21 (Appendix-II) . was not provided to Audit by DGPM,
which stated that field formations were facing problems in uploading the
which stateddata
Information/ that field formations
regarding were facing problems in
by uploading the
information on the portal.GST arrearsfurther
DGPM was not provided
stated to Audit
that DGPM,of Data
Directorate
information
which stated on that the
fieldportal. DGPM further
formations stated thatin Directorate of Data
Management had been requestedwere facing
for early problems
resolution of theuploading
technical theglitches.
Management
information onhad thebeen requested
portal. for early
DGPM further resolution
stated of the technical
that Directorate of Dataglitches.
Audit pointedhad
Management thisbeenoutrequested
in January 2022.
for early Reply of
resolution thetechnical
of the Ministryglitches.
was awaited
Audit pointed this out in January 2022. Reply of the Ministry was awaited
(February 2022).
Audit pointed
(February this out in January 2022. Reply of the Ministry was awaited
2022).
(February 2022).
3.6.6 Arrears from unit closed/defaulter not traceable
Table 3.11 below shows the trends in arrears realised from “units
Table 3.11 belowshows showsthethe trends in arrears realised from “units
closed/defaulters
Table 3.11 belownot traceable”.trends in arrears realised from “units
closed/defaulters not
closed/defaulters not traceable”.
traceable”.
Table 3.11: Trends in arrears realised from “units closed/defaulters not traceable
Table3.11:
Table 3.11:Trends
Trends in in arrears
arrears realised
realised fromfrom
“units“units closed/defaulters
closed/defaulters not
not traceable traceable
(Amount in ` crore)
Pending Arrear Arrears Recovery in Pending Arrear Arrears in ` crore)
(Amount (Amount
in ` crore) Recovery in
Pending
Pending Arrear
Arrear Arrears
Arrears Recovery
Recovery in inPending
Pending ArrearArrear Arrears ArrearsRecovery Recovery
in in
Arrear as on realised in transferred percentage of Arrear as realised transferred percentage
Arrearasason
Arrear on realised
realised in transferred
in to transferred percentage of Arrear
percentage of on as realised
Arrear as in transferred
realised percentage
transferred percentage
31.03.2019 FY 2019-20 other pending FY to other of pending
31.03.2019
31.03.2019 FY 2019-20
FY 2019-20 toto other
other pending
pending on on in FY to FY other
in to of
otherpending
of pending
formations/ arrear as on 31.03.2020
formations/ arrear as on 31.03.2020 2020-21
2020-21 formations/
formations/ arrear as on
arrear as on
formations/
category arrear
31.03.2019as on 31.03.2020 2020-21 formations/
category arrear as on
31.03.2020
category 31.03.2019 category 31.03.2020
FY20category 31.03.2019 category 31.03.2020
FY20 FY21 FY21
Central
Central 7,826
7,826 62 FY20 1,347
62 1,347 0.8 0.8 10,209 10,209 37 37 FY21 609 609 0.4 0.4
Central
Excise
Excise 7,826 62 1,347 0.8 10,209 37 609 0.4
Excise
Service
Service 3,490
3,490 44
44 307
307 1.2 1.2 6,0936,093 79 79 522 522 1.3 1.3
TaxTax
Service 3,490 44 307 1.2 6,093 79 522 1.3
TaxTotal
Total
11,316
11,316
106
106
1,654
1,654
0.9
0.9
16,302
16,302
116
116
1,131
1,131
0.7
0.7
Total 11,316 106
Source: Monthly 1,654
Progress 0.9respective16,302
Reports (MPRs) of the 116
years provided by the Ministry. 1,131 0.7
Source:
As can Monthly
be seen Progress
from theReports (MPRs)the
table above, of the respective years
Department couldprovided
recoverby onlytheone
Ministry.
As can be seen from the table above, the Department could recover only one
percan
As centbeofseen
pending
fromarrears from above,
the table the unitstheclosed/not
Departmenttraceable
couldduring
recoverbothonly one
per
FY20cent
andof pending
FY21. Duringarrears
FY20, thefrom the unitscould
department closed/not traceable
recover only during both
` 106 crore
per cent of pending arrears from the units closed/not traceable during both
FY20
(` 62and
croreFY21. During
central ExciseFY20,
and the` 44department
crore Servicecould recover
Tax) out only
of the ` 106 crore
pending
FY20 and FY21. During FY20, the department could recover only ` 106 crore
(`` 11,316
62 crorecrore central
(` 7,826Excise
crore inand ` 44Excise
Central croreandService Tax) in
` 3,490 crore out of the
Service Tax)pending
(on
` 62 crore central Excise and ` 44 crore Service Tax) out of the pending
` 11,316 crore
31 March (` 7,826 crore in Central Excise and ` 3,490 crore in Service Tax)
2019.
` 11,316 crore (` 7,826 crore in Central Excise and ` 3,490 crore in Service Tax)
on 31 March
Similarly, in 2019.
FY 21, the Department could recover only ` 116 crore
on 31 March 2019.
(one percent)
Similarly, in (`FY37 21,
crorethe
central Excise and ` could
Department 79 crorerecover
Service Tax)
onlyoutòf 116
the crore
Similarly, in FY 21, the Department could recover only ` 116
pending ` 16,302 crore (` 10,209 crore in Central Excise and ` 6,093 crore in crore
(one percent) (` 37 crore central Excise and ` 79 crore Service Tax) out of the
Service
(one Tax) on (31
percent) March
` 37 crore2020.
central Excise and ` 79 crore Service Tax) out of the
pending ` 16,302 crore (` 10,209 crore in Central Excise and ` 6,093 crore in
pending ` 16,302 crore (` 10,209 crore in Central Excise and ` 6,093 crore in
Service Tax) on 31 March 2020.
Service Tax) on 31 March 2020.
39
39
39
39
Report
Report No.
No. 55 of
of 2022
2022 (Indirect
(Indirect Taxes
Taxes –̶ Goods
Goods and
and Services
Services Tax)
Tax)
AuditReport No. 5 of 2022 (Indirect Taxes – Goods and Services Tax)ascertain the reasons for low
Audit requested
requested (January
(January 2022)2022) thethe Ministry
Ministry to to ascertain the reasons for low
percentage
percentage of recovery of arrears in units closed/defaulters not
of recovery of arrears in units closed/defaulters not traceable.
traceable.
Audit requested (January 2022) the Ministry to ascertain the reasons for low
Reply of the Ministry was awaited (February
Reply of the Ministry was awaited (February 2022). 2022).
percentage of recovery of arrears in units closed/defaulters not traceable.
Reply of the Ministry was awaited (February 2022).
3.6.7
3.6.7 Age-wise
Age-wise analysis
analysis of
of arrears
arrears pending
pending for
for recovery
recovery
3.6.7 Age-wise analysis of arrears pending for recovery
Age
Age wise
wise break-up
break-up ofof the
the arrear
arrear cases
cases pending
pending for
for recovery
recovery atat the
the end
end of
of FY20
FY20
and Age wise
FY21 is break-up
given of the
below in arrear
Table cases
3.12.pending for recovery at the end of FY20
and FY21 is given below in Table 3.12.
and FY21 is given below in Table 3.12.
Table 3.12: Age wise break up of arrears of Central Excise and Service Tax
Table Table
3.12:3.12:
Age Age
wisewise
break upupofofarrears
break arrears ofofCentral
Central Excise
Excise andand Service
Service Tax Tax
(Amount in ` crore)
(Amount(Amount in ` crore)
in ` crore)
Over
Over 1 year Over 2 years Over Over5 years5 years
Closing Balance as on as on
Closing Balance Over 11 year
year Over 2 years
Over 2 years Over 5 years
Closing Balance as on 1 year or below
or below butbutless
less than
than 22 but but less than
5 5but less
butthan
less10thanover
10 over 10 years
Stream Stream 31st March
31st March 1 year or below but less than 2 but less than 5 but less than 10 10 years
1 year less than
over 10 years
Stream 31st March years
years years
years years years
years years years
Year No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt.
Year No. Amt. No. Amt. No. Amt. No. Amt. No. Amt. No. Amt.
Year No.
Central 2020 44,548
Amt. 83,351No.12,189 Amt.
25,053 No. Amt. 8,106
4,733 11,436 No. 26,502 Amt. 8,361 No. 13,955 Amt.
11,159 6,404No. Amt.
Central 2020 44,548 83,351 12,189 25,053 4,733 11,436 8,106 26,502 8,361 13,955 11,159 6,404
Central 2020
excise 44,548
2021 38,071 83,351 12,189
80,301 8,20225,053
23,760 4,733
3,738 11,436
9,457 8,10620,466
7,185 26,5027,7258,361 19,59313,955
11,221 11,159
7,023 6,404
excise 2021 38,071 80,301 8,202 23,760 3,738 9,457 14,7717,18541,087
20,466 7,725 19,593 11,221 7,023
excise Service
2021 38,071
2020 80,301
72,483 1,44,5128,202 23,760 3,738
27,947 52,078 9,671 9,457
28,058 7,185 20,466 14,259 7,725 19,593 11,221 7,023
22,344 5,835 945
Service 2020
tax 72,483
2021 1,44,512
65,001 27,947
1,46,332 23,15852,078
47,239 9,671
9,180 28,058
28,749 14,77142,665
13,934 41,087 14,259
13,000 26,23822,344 5,835
5,729 1,442 945
Service 2020 72,483 1,44,512 27,947 52,078 9,671 28,058 14,771 41,087 14,259 22,344 5,835 945
tax 2021 65,001 1,46,332 Source:23,158 47,239Reports
Monthly Progress 9,180(MPRs) 28,749 13,934 years
of the respective 42,665
provided13,000 26,238
by the Ministry. 5,729 1,442
tax 2021 65,001 1,46,332 23,158 47,239 9,180 28,749 13,934 42,665 13,000 26,238 5,729 1,442
Source: Monthly
With Progress
respect Reports
to Central (MPRs)
Excise, as on of 31
the respective years
out provided by the Ministry.
Source: Monthly Progress Reports (MPRs) of theMarch 2021,
respective years of the total
provided pending
by the Ministry.
With Central
respect Excise
to arrears
Central of ` 80,301
Excise, as crore, ` 26,616 crore (35 per cent) were
Withpending
respectfor tomore
Central
thanExcise,
five years.as onon 31 31 March
March 2021,2021, outout ofof the
the total
total pending
pending
Central
Central Excise
Excise arrears
arrears of
of `` 80,301
80,301 crore,
crore, `` 26,616
26,616 crore
crore (35
(35 per
per cent)
cent) were
were
Similarly,
pending for with
more respect
than to
five Service
years. Tax, as on 31 March 2021, out of the total
pending for more than five years.
pending Service Tax arrears of ` 1,46,332 crore, ` 27,680 crore (19 per cent)
Similarly, with
with respect
were pending
Similarly, to
for more
respect Service
tothan Tax,
Tax, as
five years.
Service as on
on 31
31 March
March 2021,
2021, out
out of
of the
the total
total
pending
AuditService
pending further Tax
Service Tax arrearsthe of
arrears
examined of `` 1,46,332
1,46,332
pendency crore,
crore,
of arrears `` 27,680
27,680
pending crore
five(19
crore
for more (19 per
per cent)
years. cent)
were pending
The for
findings more
are than
discussed infive
the
were pending for more than five years.years.
following paragraphs.
Audit further
Audit3.6.7.1
further examined
examined
Age-wise the
theof
analysis pendency
pendency of arrears
ofpending
arrear cases pending
arrearsfor
pending for
for more
long period more five
five years.
years.
The findings are discussed in the following paragraphs.
The findings are discussed in the following paragraphs.
Table 3.13 below shows the category-wise pendency of Service Tax arrears
pending
3.6.7.1 for more
Age-wise than five
analysis of years,
arrear during
cases the last three
pending years,
for long i.e. FY19, FY20
period
3.6.7.1 Age-wise
and FY21. analysis of arrear cases pending for long period
Table
Table 3.13
3.13 below
below shows
shows the
the category-wise
category-wise pendency
pendency ofof Service
Service Tax
Tax arrears
arrears
pending
pending for more than five years, during the last three years, i.e. FY19, FY20
for more than five years, during the last three years, i.e. FY19, FY20
and FY21.
and FY21.
40
40
40
40
Table 3.13: Pendency of Service Tax arrears pending for more than five years
(Amount in ` crore)
More than 5 years
Stream March 2019 March 2020 March 2021
No. Amount No. Amount No. Amount
CESTAT 5,529 21,169 4,569 19,798 4,166 21,033
Units closed/Defaulters 11,331 469 10,648 616 10,094 3,266
Official Liquidator cases 51 90 58 961 62 1,093
High Court 738 994 773 729 788 818
Supreme Court 57 288 55 482 75 566
Commissioner Appeal 1,256 192 1,126 178 1,067 196
Units taken over by
Financial Institutions 70 666 65 146 62 189
Section 142 (c ) (I)-
Certificate Action with
District Authorities 86 57.4 96 97.27 87 100
Appeal period over(But no
appeal filed) 2,153 101 1,588 129 1,477 280
Section 87 of the Finance
Act. 1994 1,017 99 679 74 481 69.26
Arrears pending for write-
off 588 5.58 196 6.3 221 17
Other 56
511 143.41 240 80.72 149 53.28
Total 23,387 24,274.39 20,093 23,297.29 18,729 27,680.54
*Arrears more than 10 crore are shown category-wise.
As can be seen from the table above, ` 21,033 crore and ` 3,266 crore arrears
are pending for more than 5 years under the category of “CESTAT” and “Units
closed/Defaulters”, constituting 76 per cent and 12 per cent under the
category, respectively, as of March 2021.
Table 3.14 below shows the category-wise pendency of Central Excise arrears
pending for more than five years, during the last three years, i.e. FY19, FY20
and FY21.
56 BIFR Cases, Arrears where appeal period not over, Section 142 (c ) (ii)- of the Customs Act, 1962 as
made applicable to Central excise and Specify, if Any.
41
41
Table 3.14: Central Excise arrears pending for more than five years
(Amount in ` crore)
More than 5 years
Stream March, 2019 March, 2020 March, 2021
No. Amount No. Amount No. Amount
CESTAT 6,154 11,243 5,066 10,388 4,553 16,257
Units closed/Defaulters 6,473 3,817 6,461 5,265 6,916 6,009
High Court 1,065 1,206 879 1,055 746 914
Official Liquidator cases 2,250 1,175 2,279 1,166 2,235 1,328
Units taken over by Financial 1,587 1,132 1,580 1,277 1,516 911
Institutions
Commissioner Appeal 1,150 171 953 146 904 144
BIFR Cases 922 432 857 429 710 312
Supreme Court 146 288 124 415 128 432
Section 142 (c ) (I)- Certificate 208 33 190 26 167 47

Action with District Authorities
Section 142 (c ) (ii)- of the 308 71 230 61 176 97
Customs Act, 1962 as made
applicable to Central excise
Appeal period over(But no 202 25 210 31 141 31
appeal filed)
Arrears pending for write-off 476 57 501 65 517 60
Others57 302 45.98 190 32.13 237 75.35
Total 21,243 19,695.98 19,520 20,356.13 18,946 26,617.35

*Arrears more than 10 crore are shown category-wise.
As can be seen from the table above, ` 16,257 crore and ` 6,009 crore arrears
are pending for more than 5 years under the category of “CESTAT” and “Units
closed/Defaulters”, constituting 61 per cent and 23 per cent in the category,
respectively, as of March 2021.
Audit pointed this out in January 2022. Reply of the Ministry was awaited
(February 2022).
3.7 Conclusion
Audit observed that even after more than four years of implementation of GST,
the originally envisaged non-intrusive e-tax system, based on preventive
checks is yet to be fully implemented. The Department needs to take adequate
steps to achieve a non-intrusive e-tax system and system-verified flow of ITC.
Audit further noted that an effective system of scrutiny of returns with
57 Arrears where appeal period not over, Section 11 of the Central Excise Act, 1944, JS (RA) and Specify,
if any.
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42
statutory backing based on detailed instructions/standard operating

procedure/manual is yet to be implemented. Audit also examined the
monitoring and feedback mechanism of DGARM reports and observed that use
of manual/semi-automated mechanism put in place by the Department in
respect of high risk taxpayers, identified in DGARM reports, is sub-optimal and
fails to properly leverage the full potential of IT and thus, there is a need that
the entire set of activities should be end-to-end automated as part of the CBIC-
GST platform.
In addition, Audit examined the Department’s performance with respect to the
compliance verification system, viz. internal audit and anti-evasion functions
and performance of the Department in recovery of arrears during the relevant
period. Audit observed significant gaps between the number of units planned
and actually audited in GST, Central Excise and Service Tax Units. Further, the
amount involved in the disposed-off investigation cases remained very low
during last four years. Further, Audit observed lack of significant improvement
in the recovery of arrears of Central Excise and Service tax during the last two
years.
3.8 Summary of Recommendations
1. In the absence of an effective risk-based system of scrutiny of returns

with statutory backing based on detailed instructions/standard
operating procedure, the Department is relying on DGARM inputs to
discharge its compliance verification functions. Thus, in order to give
assurance on Department’s performance, Audit needs access to data
analysis methodology/parameters in respect of the DGARM reports
along with the detailed reports, in particular in respect of cases where
feedback is already provided. Audit recommends that such access to
the records and information pertaining to DGARM reports may be
provided without delay so that CAG’s constitutional and statutory
duties could be discharged.
2. Though the DGARM reports and the action taken by the field
formations on these reports are being uploaded on the DDM portal,
detailed action taken by the field formations on these reports like
correspondence with the taxpayer to explain the nature of discrepancy
noted and to take taxpayers’ response on the same is still being done
manually/offline. Audit recommends that the entire set of activities
should be end-to-end automated as part of the CBIC-GST platform to
facilitate transparency and effective real-time monitoring.
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3. Audit recommends fixing of timelines in which the Department offices

should complete action on the DGARM reports, against which progress
can be monitored.
4. In the era of self-assessed tax regime, internal audit is one of the main
tools for ensuring compliance by the taxpayers. Further, departmental
action against non-compliant taxpayers is a time bound activity under
section 73 of CGST Act, 2017. Audit, therefore, recommends that
suitable administrative measures should be taken to address the
shortage of staff in Audit Commissionerates. Till the time man-power
shortage is addressed, the Department may take into account the
available staff strength for planning the number of units for internal
audit with focus on high risk taxpayers.
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Chapter IV: Reliability of GST data maintained by Goods and

Services Tax Network
Information Technology is at the core of the implementation of Goods and

Services Tax. It provides the platform for tax compliance required under the
law, constitutes the interface with taxpayers and aids the tax administration in
the assessment and collection of revenue. Processes such as registration, filing
of returns through various forms, and tax officers’ communications with
taxpayers are predominantly online. Hence, the procedures for capturing
reliable data, the procedure of sharing it with relevant stakeholders and
maintaining the integrity of such data form the basis of the GST regime.
Two phases of IT Audit of Goods and Services Tax Network (GSTN) have been
completed. The audit findings of the first phase, on registration, payments and
IGST settlement modules, were published in Audit Report No. 11 of 2019. The
audit findings of the second phase were published in Audit Report No. 1 of
2021 and covered the modules of refunds, returns and e-way bills. Through
these reports, various validation deficiencies and data inconsistencies were
already highlighted.
4.1 Scope of audit and methodology followed
Audit was provided access to the GST returns data in February 2021, in GSTN’s
premises, pertaining to the period from FY 2017-18 to FY 2019-20, as filed by
taxpayers up to August 2021. An analysis was performed by Audit with a view
to deriving an assurance on the quality of data captured.
The analysis was done on the following return data provided to Audit:
• GSTR-1 (all outward supplies, including invoice level details of supplies
to other registered taxpayers, filed by suppliers)
• GSTR-3B (monthly return, wherein suppliers declare summary of
supplies and tax liability, as well as the ITC to be claimed on inward
supplies and pay taxes)
• GSTR-9 (an annual return, containing the summary of the whole year’s
transactions; payment of tax, due to difference in the liabilities
between the monthly returns and the annual return, if any, can also be
made through this return, on the basis of self-declaration)
During analysis, it was noticed that the GST data has significant inconsistencies,
possibly due to lack of validation checks in the GST common portal, at the time
of data entry by the taxpayer, in various GST related returns and forms or
through inadequate data analytics post-data entry. This was earlier highlighted
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by Audit, during the IT audit of GSTN (Phase-II), published in Para 3.8 of CAG’s
Audit Report 1 of 2021. It may be pertinent to mention that, in the same
report, it had also been pointed out that Audit could not give assurance on the
quality of GST data, as GSTN had neither provided the data, nor had it run the
data analysis queries given by Audit on the said data. The data analysis could
be performed now by Audit after GSTN gave access in February 2021.
4.2 Inconsistencies between taxable values and tax liability

declared – resulting in capture of unreliable data
All GST return forms have fields to enter taxable values and tax dues. In GSTR-
1, the rate of tax can also be entered. However, Audit observed lack of
validations in the GST Common Portal to accept only reasonable values. Some
significant issues, from the data analysis, are highlighted in the following
paragraphs
4.2.1 During analysis of GSTR-1 data, Audit noticed that, in more than 4.63
lakh records of 3,424 GSTINs, the tax amount (sum of IGST, CGST and SGST)
entered was more than 28 percent of the taxable value (which is the maximum
rate of GST), as detailed in Table 4.1.
Table-4.1: Data inconsistencies in GSTR-1 with regard to the applicable GST rates
(₹ in crore)
Financial No. of No. of Taxable IGST CGST SGST Effective
Year Records GSTINs value Rate
2017-18 10,752 987 135.59 249.81 539.95 184.62 719%
2018-19 1,36,259 1,280 276.36 333.84 6,980.77 1,311.58 3,121%
2019-20 3,16,771 1,157 204.61 126.98 332.86 304.01 373%
4,63,782 3,424
4.2.2 Similarly, during analysis of GSTR-3B data, Audit noticed that, in 92,541
records of 60,908 GSTINs, the taxable values were inconsistent with the tax
amounts (IGST+CGST+SGST) entered. In these cases, the aggregate annual tax
amount (as per GSTR-3B) was more than 28 per cent of the corresponding
taxable value, as detailed in Table 4.2.
Table-4.2: Data inconsistencies in GSTR-3B with regard to the applicable GST rates
(₹ in crore)
Financial No. of No. of Taxable IGST CGST SGST Effective
Year Records GSTINs value Rate
2018-19 30,028 19,104 9,270.50 2,406.75 1,738.48 1,738.54 63%
2019-20 23,913 15,968 4,932.01 848.12 1,113.99 1,113.99 62%
2017-18 38,600 25,836 16,675.54 3,561.88 2,377.13 2,311.20 49%
92,541 60,908
4.2.3 During analysis of GSTR-9 data, Audit noticed that, in 1,900 records of
1,900 GSTINs, the taxable values in the ‘total outward supplies’ were wildly
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inconsistent with the tax amounts (IGST+CGST+SGST) entered therein, as

detailed in Table 4.3.
Table-4.3: Data inconsistencies in GSTR-9 with regard to applicable GST rates
(₹ in crore)
Financial No. of No. of Taxable IGST CGST SGST Calculated

Year Records GSTINs value Effective Rate
2017-18 900 900 3,324.21 7,48,804.98 1,150.69 1,409.66 22,603%
2018-19 566 566 4,253.38 852.99 3,87,412.96 1,330.77 9,160%
2019-20 434 434 2,848.50 788.12 570.48 937.19 81%
1,900 1,900
Audit further observed lack of post-facto data analytics to identify cases of data
inconsistencies and lack of a system to review and address such cases.
When Audit pointed this out (January 2022), GSTN stated (February 2022) that
many validations were not implemented since it was a new system with a lot
of technical challenges and was in the phase of getting stabilised and matured.
Building more validations would have complicated the system, which would
have negatively affected efficiency, resulting in poor return-filing of taxpayers
and consequent revenue collection of the government.
GSTN further stated that exact co-relation between the taxable values and the
tax amount is not checked in the system on account of difference in rounding-
off method and issue of credit/debit notes.
The reply of the GSTN is not acceptable as Audit has suggested a combination
of systems controls and post-facto data analytics to address the issue of data
inconsistencies. Further, GSTN’s system has gone past the phase of getting
stabilised, if this is a justification for not implementing validations. Also, GSTN’s
reply is silent on the need for post-facto data analytics for identifying,
reviewing and addressing the GST data inconsistencies. It may be pertinent to
mention that compliance functions of the Department such as internal audit
and anti-evasion activities now rely on GST data analysis to identify high risk
taxpayers for appropriate action. Data inconsistencies and lack of reliable data,
if not addressed in time, may lead to sub-optimal compliance functions and
possible wastage of tax administration resources.
4.3 Inconsistencies in the CGST and SGST components of GST
The rates of CGST and SGST, levied on goods or services, are equal. Therefore,
the amount of tax, declared under both CGST and SGST, by a taxpayer in the
return, has to be equal. However, in the course of data analysis, it was noticed
that there were significant differences between the declarations of these two
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categories of taxes. Records where the difference between CGST and SGST
amount was more than one thousand rupees, are discussed below.
4.3.1 During analysis of GSTR-1 data, Audit noticed that, in 8, 28,813 records
of 55,130 GSTINs, there was a difference of more than one thousand rupees
between the CGST and SGST amount, as detailed in Table 4.4.
Table-4.4: Data inconsistencies in GSTR-1 with regard to CGST/SGST
(₹ in crore)
Difference
Financial No. of No. of Taxable in CGST and
Year Records GSTINs Value CGST SGST SGST
2017-18 5,47,664 16,375 36,728.13 2,995.47 2,578.74 416.73
2018-19 2,13,517 20,186 36,315.58 9,853.96 4,254.95 5,599.01
2019-20 67,632 18,569 20,917.91 1,874.12 1,747.20 126.92
8,28,813 55,130 14,723.55 8,580.89 6,142.66
4.3.2 During analysis of GSTR-3B data, Audit noticed that, in 26,942 records
of 20,305 GSTINs, there was a difference between the CGST and the SGST of
more than one thousand rupees. The total CGST amount was ₹ 24,896.51
crores, against the corresponding SGST amount of ₹ 25,120.12 crores, as
detailed in Table 4.5.
Table-4.5: Data inconsistencies in GSTR-3B with regard to CGST/SGST
(₹ in crore)
Year No. of No. of Taxable Value CGST SGST Difference
Records GSTINs in CGST
and SGST
2017-18 22,256 17,694 2,05,533.58 13,019.86 13,069.58 49.72
2018-19 3,357 1,692 1,42,279.04 9,216.59 9,329.86 113.27
2019-20 1,329 919 41,576.73 2,660.04 2,720.64 60.60
26,942 20,305 24,896.49 25,120.08 223.59
4.3.3 During analysis of GSTR-9 data, Audit noticed that, in 11,366 records,
pertaining to the total taxable outward supply, in respect of 11,366 GSTINs,
there was a difference of more than one thousand rupees, between the tax
declared against the SGST and the CGST, as detailed in Table 4.6.
Table-4.6: Data inconsistencies in GSTR-9 with regard to CGST/SGST
(₹ in crore)
Financial No. of No. of Taxable Value CGST SGST Difference
Year Records GSTINs in CGST and
SGST
2017-18 5,368 5,368 4,95,806.26 24,233.25 25,033.01 799.76
2018-19 3,552 3,552 4,57,100.34 4,11,544.27 25,372.84 3,86,171.43
2019-20 2,446 2,446 1,94,893.07 10,981.13 11,576.22 595.09
11,366 11,366 4,46,758.65 61,982.07 3,84,777.58
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The above data inconsistencies indicate the existence of unreliable data and
differential tax collections for the Union and States, in contravention of the
GST Acts. Due to the lack of appropriate hard and soft controls, or lack of
adequate post facto analysis at important data points, the data captured was
unreliable in several cases. These inconsistencies are liable to increase the
complexity and the resources needed for compliance functions that are
required to be discharged by the tax administration.
the check for entering same CGST and SGST amount was not incorporated, as
during the initial phase of GST, taxpayers had to issue Notes (Credit or Debit)
pertaining to the earlier tax-regime, wherein, either a CGST component or only
a SGST component was required. Further, it stated that in GSTR-3B, a check
had been built to ensure that CGST component must be equal to SGST
component. This check was built on GST portal in 2018 and was later added
into Application programming interface (API)58 in 2020. It admitted that no
such check is kept in GSTR-1 and GSTR-9. GSTN further stated that such
validations can be built in GSTR-1 and GSTR-9 subject to the directions from
the Government/GST Council.
Audit is of the view that matching of CGST and SGST components is a basic
validation control and falls under the purview of GSTN. Since a validation check
has been built in GSTR-3B, similar checks may also be incorporated in GSTR-1
and GSTR-9.
Ministry’s reply was awaited (February 2022).
4.4 Inconsistencies in Input Tax Credit (ITC) figures
Taxpayers claim ITC summarily, on a monthly basis, under different heads, such
as from the imports of goods/ services, received from ISD distributors59, on
reverse charge60 basis and other supplies, in GSTR-3B, and the same have to
be declared again, in GSTR-9, on an annual basis. Similarly, the ITC being
reversed and the ineligible ITC, are also shown in both the monthly, as well as
the annual returns. In addition, GSTR-9 has a provision for declaring the ITC
received during a financial year but claimed or reversed in the next financial
year. The ITC declared in GSTR-3B has a direct impact on tax payments, as it is
58 For third party applications. These third-party applications can connect with the GST system via
secure GST system APIs.
59 Input Service Distributor (ISD) means an office of the supplier of goods or services, or both, which
receives tax invoices towards receipt of input services and issues a prescribed document for the
purposes of distributing the credit of central Tax (CGST), State Tax (SGST)/ Union Territory Tax
(UTGST) or Integrated Tax (IGST), paid on the said services, to a supplier of taxable goods or services,
or both having same PAN as that of the ISD.
60 Reverse charge is a mechanism where the recipient of the goods or services is liable to pay Goods
and Services Tax (GST), instead of the supplier.
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credited to the ITC ledger and can be utilized for settlement of outstanding
liabilities. However, the ITC declared in GSTR-9 has no impact on the ledger,
since neither is the excess ITC credited, nor is the short ITC automatically
reversed from the ledger, unlike the unsettled tax liability (which can be settled
in GSTR-9).
Hence, the ITC shown in GSTR-3B has a direct implication on tax payments.
However, since GSTR-9 has scope for providing the details of utilization and
reversal in the next financial year, it can be useful for reconciliation with the
available ITC, for the purpose of assessment.
A comparison, of the values of GSTR-3B and the corresponding values of GSTR-
9, showed that the records of 39, 59,790 GSTINs (constituting 76 per cent of
the total 52, 19,332 GSTINs who had filed GSTR-9), included one or more
records where the corresponding ITCs between GSTR-9 and the annual totals
of GSTR-3B did not match (differences of less than ₹ 100 were ignored). A
head-wise comparison, of cases where there are differences, is discussed in
the following paragraphs.
4.4.1 Inconsistency in the auto-populated and non-editable field 6A of

GSTR-9
Audit noticed inconsistencies in 26,478 records, amounting to ₹ 5,071 crore, in

the field 6A of GSTR-9 (Total amount of input tax credit availed through GSTR-
3B), which was supposed to be auto-populated and non-editable. The details
are in Table 4.7.
Table-4.7: Difference in ITC values between 4A of GSTR-3B and 6A of GSTR-9
(₹ in crore)
Mismatch in Table Records GSTINs Total of GSTR-9 Total of GSTR-3B Absolute
Values Values Difference
Total ITC availed 26,478 23,371 23,97,235 24,02,197 5,071
through GSTR-3B (6A of
R9 vs 4A of R3B)
When Audit pointed this out (January 2022), GSTN admitted (February 2022)
that there should not have been any difference in the above mentioned fields.
GSTN stated that they would examine the issue in detail.
4.4.2 Inconsistency in auto-populated, though editable, fields of GSTR-9
Other ITC fields of table 6 of GSTR-9 are auto-populated. However, the

taxpayer is allowed to edit the values. It may be noted that any change of value
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in GSTR-9 has no direct impact on the ITC ledger, which is used for payment of
tax. Hence, in case of any substantial difference, an alert should have been
raised to the tax administration, for appropriate follow-up action.
Inconsistencies noticed by Audit are detailed in Table 4.8.
Table-4.8: Difference in ITC values between the ITC figures of GSTR-3B and GSTR-9
(₹ in crore)
Mismatch in Table Records GSTINs Total of GSTR-9 Total of GSTR- Absolute
Values 3B Values Difference
Other ITC claimed (6B of 27,23,298 19,43,074 41,18,940 44,07,810 13,49,684
R9 vs 4A(5) of R3B)
RCM ITC claimed (6C+D of 6,19,162 4,96,358 62,291 1,31,826 96,486
R9 vs 4A(3) of R3B)
ITC claimed on account of 2,01,857 1,46,713 4,14,064 4,03,333 81,665
Import of Goods (6E of R9
vs 4A(1) of R3B)
ITC claimed on account of 1,06,597 97,319 17,455 29,115 16,176
ISD (6G of R9 vs 4A(4) of
R3B)
ITC claimed on account of 49,387 38,008 43,667 36,766 23,859
Import of Services (6F of
R9 vs 4A(2) of R3B)
ITC reversal (7I of R9 vs 4B 7,99,145 6,29,733 2,33,233 7,23,489 7,78,995
of R3B)
Ineligible ITC (8F of R9 vs 7,92,049 5,85,214 1,57,568 91,424 1,90,477
4D of R3B)
Total 52,91,495 39,36,419 25,37,342
Audit pointed this out (January 2022). In reply (February 2022), GSTN stated
that in the editable fields, alert for variation of more than 20 per cent was given
to the taxpayer while filing GSTR-9. However, the taxpayer was not stopped
from reporting any value in the editable fields, even having variation of more
than 20 per cent. It further stated that a suitable MIS of difference between
pre-filled Annual Return and the user-entered values would be made available
in consultation with GST Policy Wing so that an appropriate threshold of the
difference might be decided for generating MIS.
4.4.3 Incorrect computation in GSTR-9
Audit further noticed the existence of computational errors in the system. In

GSTR-9, field 6J is the difference of actual claims, as made in GSTR-3B (auto-
populated as 6A) and the claims being shown in GSTR-9 (from 6B61 to 6H, which
61 6B to 6H are different types of ITC shown in GSTR-9, as claimed.
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are totalled as 6I). The system auto-computes 6J as the difference of 6I62 and
6A. Thus, 6J should be equal to (6I-6A).
Audit noticed that, in 1,387 records, there was a difference of more than one
hundred rupees between both these sets of figures [i.e. 6J-(6I-6A)], as detailed
in Table 4.9.
Table-4.9: Computational errors in GSTR-9
Records GSTINs 6A of 6I of GSTR-9 (total of 6J (6I-6A) Absolute difference63
GSTR-9 6B to 6H) (₹ in crore) [6J-(6I-6A)]
(₹ in crore) (₹ in crore) (mismatch)
(₹)
1,387 1,011 15,30,989 13,81,973 -1,49,013 2,09,78,317
The above indicated that there were inconsistencies within the GSTR-9 form,
which reduced the reliability of data and increased the complexity of the
compliance functions to be discharged by the tax administration.
the issue would be examined in detail.
4.5 Non-allocation of taxpayers, to either the Centre or the States
The GST Council, in its ninth meeting, devised a formula for the division of
taxpayers between the Centre and the States and issued Circular 1/2017 dated
20 September 2017 to this effect. The taxpayers are to be administered by
either the Centre, or by the States. The GST master table captures records of
the allocation of taxpayers. Data analysis revealed that 49,077 taxpayers were
allocated to neither the Centre, nor to any of the States. Out of these, 14,322
were Normal taxpayers and 2,419 taxpayers had filed their GSTR-3B returns.
Table-4.10: Data showing approving authority null in the GST master
Registration Type Approving Registration in Registration in Registration in Registration
(code) Authority FY 2017-18 FY 2018-19 FY 2019-20 in FY 2020-21
Casual Taxpayers
(CA) NULL 10,724 9,631 8,228 4,973
Composition (CO) NULL 1,013 0 0 0
Input Service
Distributor (ID) NULL 186 0 0 0
Normal Taxpayer
(NT) NULL 14,322 0 0 0
In view of the above, there is a possibility that those taxpayers who have not
been allocated to any authority, are not being monitored by any tax
administration.
62 6(I) is sum of 6B to 6H, which are different types of ITC now being declared as claimed, in GSTR-9
63 Absolute difference is the sum of individual mismatch in 1,387 records.
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4.6 Conclusion
During analysis of pan-India data provided by GSTN, Audit noticed significant

data inconsistencies between the taxable value and declared tax liability.
Inconsistencies were also noticed between the CGST and SGST components of
GST, and between ITC figures captured in GSTR-3B and GSTR-9 returns. Due to
significant inconsistencies in the GST data, Audit could not establish the
reliability of data, for the purpose of finding audit insights and trends in GST
revenue, and assessing high risk areas such as tax liability and ITC mismatch at
the pan-India level.
Audit requested (January 2022) the Ministry to provide the reasons for such
data inconsistencies and to ascertain whether a system/ mechanism has been
put in place at GSTN or any other level to address such data inconsistencies,
and actions that are being taken in cases of inconsistent data. Reply of the
Ministry was awaited (February 2022).
4.7 Recommendation
Ministry should consider introducing appropriate validation controls (controls

which prevent unreasonable data entries or alert the taxpayer to unreasonable
data or both) supplemented by post-facto data analytics in respect of
important data elements (including those covered in this audit analysis), where
in data (such as tax amounts; taxable values; tax components, like CGST and
SGST; validation of ITC and tax amounts, between the annual and monthly
returns) is entered by the taxpayer. An effective review and follow up system
needs to be developed at GSTN to review and address cases of data
inconsistencies. In case of significant deviations, tax officers may be alerted to
the inaccuracies and directed to take necessary action. Further, cases of all
taxpayers, who have not been allocated to either the Centre or State
jurisdictions, may be reviewed and they may be allocated to appropriate tax
administrations, as per the guidelines of the GST Council.
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Chapter V: Processing of Refund claims under GST
5.1 Introduction
Effective management of tax refunds is a key activity in the administration of

taxation systems. Hassle free, simple and timely refund process facilitates the
taxpayers by providing much needed liquidity and cash flow. Tax
administrators need to balance taxpayer’ expectations of good levels of service
with the responsibility for preventing and dealing with fraudulent and
erroneous refund claims. The Supreme Court64 has held that good government
involves not only diligent collection of taxes but also ready refunds of excess
levies. The rules and notifications should be drafted in a simple and clear
language and the interpretation should be fair and consistent and not always
the one that is adverse to the taxpayers.
Refund means the amount that is returned to the taxpayer which was either
paid in excess or which was not payable under the statute. Refund includes not
only tax but also interest, penalty, fee, or any other amount paid.
For ensuring single interface for the taxpayers, they are assigned to the
jurisdiction of either the State or Central Authority65 as per the cross-
empowerment provisions of Section 6 of the Central Goods and Services Tax
Act, 2017 (CGST Act). The taxpayers are required to submit the documents for
refund claim to the assigned jurisdictional authority.
5.1.1 Processing of refunds
5.1.1.1 Pre-automation
GST law envisaged an automated environment for refund claims through a

refund module in the Goods and Services Tax portal. However, the taxpayers
were required to file the refund applications online in Form RFD-01A, take a
printout of the application and submit it physically to the jurisdictional tax
office, with all supporting documents, as the refund module was not available
up to 25 September 2019.
The processing of the refund applications up to payment was carried out
manually. From 1 January 2019, the refund applications and supporting
documents had to be submitted online. The refund applications, however,
were processed manually by the Department. The disbursement process was
offline wherein the Central tax authority would disburse the Integrated Goods
64 Aluminum Corporation Ltd. vs. Union of India {(1978) 2 ELT 452 (SC)} in context of refund arising due
to conditional exemption granted to aluminum ingots under Central Excise Rules, 1944
65 GST Council circular dated 20 September 2017
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and Services Tax (IGST), Central Goods and Services Tax (CGST) and cess
component, and forward the sanction order to the State tax authority for
disbursement of the State Goods and Services Tax component (SGST)
component of the sanctioned refund. Similarly, the State/Union Territory (UT)
authority would disburse the SGST/UTGST component and forward the
sanction order to the Central tax authority for disbursement of IGST, CGST and
Cess component of the sanctioned refund.
5.1.1.2 Post-automation
From 26 September 2019, the entire refund process upto payment has been
automated. The taxpayers are required to file the application in Form RFD-01
online and upload all relevant documents. The date of uploading the
application in RFD-01 is considered as the date of submission of application.
5.1.1.3 Dual empowerment for submission, processing and payment
The administrative jurisdiction of taxpayers has been allocated to the Central

or State tax authorities, based on the criteria determined by the GST Council
in its 21st meeting held on 9 September 2017. A state level committee
comprising of Chief Commissioner/Commissioner Commercial Taxes of the
respective State and jurisdictional Central Tax Chief Commissioners/
Commissioners allocated the existing taxpayers to the State or Central tax
authorities66. The newly registered persons are required to file the refund
claim to the Central tax authority or State tax authority as assigned vide
aforesaid Circular. The State/Union Territory (UT) authorities are empowered
to sanction refund of CGST, IGST and Cess components and the Central
authorities are empowered to sanction refund of SGST/UTGST claimed by the
taxpayers under their respective jurisdiction67.
5.1.1.4 Payment of refunds
In the pre-automation period, the payment of the SGST/CGST tax components

was made by the respective State or Central tax authorities, based on the
refund orders received from the administrative authorities sanctioning the
refund. The refund order issued either by the Central tax authority or the State
/UT tax authority was to be communicated to the concerned counter-part tax
authority within seven working days for making the payment. The payment of
the sanctioned refund amount in relation to CGST / IGST /cess had to be made
66 GST Council Circular dated 20 September 2017

67 Notification dated 13 October 2017
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by the Central tax authority while payment of the sanctioned refund amount
in relation to SGST / UTGST was made by the State /UT tax authority.
In the post-automation period, the payment of all the components viz. CGST,
IGST, SGST and cess is being made68 through the Public Financial Management
System (PFMS) via e-PAO irrespective of the jurisdictional Authority (Central or
State), which processed the refund application.
The various stages of processing of refund claims are detailed in Appendix-III.
5.1.2 Types of GST refund
Refunds are granted under various categories such as refund of tax paid on
zero-rated supplies69, refund of accumulated input tax credit (ITC) due to
inverted duty structure, refund of excess balance in electronic cash ledger etc.
Category wise details of refund applications received and payments made with
respect to taxpayers under CBIC jurisdiction, during the period from 26
September 2019 to 31 July 2020 (post-automation), are detailed in Table 5.1:
Table 5.1: Category wise details of applications received and payments made
from 26 September 2019 to 31 July 2020 (as on 3 November 2021)
Applications Acknowledgment Sanction order Payment issued

received issued issued through PFMS
Sl. Amount Amount
Category of refund Amount Amount
No. No of claimed No of claimed No of No of
sanctio paid (in
cases (in ₹ cases (in ₹ cases cases
ned ₹ crore)
crore) crore)
Export of goods and
1 services without 58,838 26,603 27,447 16,488 26,031 14,727 25,509 14,672
payment of Tax
ITC accumulated due
2 to Inverted Duty 71,147 7,505 29,559 5,213 28,357 4,627 27,174 4,507
Structure70
Excess balance in
3 electronic cash 22,893 2,599 22,567 2,509 21,629 2,253 18,963 2,245
ledger
Export of services
4 4,270 3,167 1,100 1,441 1,021 1,137 944 1,118
with payment of Tax
68 CBIC circular dated 18 November 2019

69 Section 16(1) of the IGST Act, 2017 defines ‘zero rated supply’ to mean supplies of goods or services or
both, namely: a) export of goods or services or both; or b) supply of goods or services or both to a
Special Economic Zone developer or a Special Economic Zone unit
70 ‘Inverted Duty Structure ‘refers to a situation where the rate of tax on inputs purchased is more than
the rate of tax on outward supplies. Inverted Duty Structure arises when tax paid on Inward Supplies
is higher than tax payable on outward supplies.
57
57
Applications Acknowledgment Sanction order Payment issued
received
Applications issued
Acknowledgment issued order
Sanction through
PaymentPFMS
issued
Sl. Amount
received Amount
issued issued through PFMS
Category of refund Amount Amount
No. Sl. No of claimed
AmountNo of claimed
AmountNo of No of
Category of refund sanctio
Amount paid (in
Amount
No. casesNo of (in ₹ claimedcasesNo of (in ₹claimed cases
No of cases
No of
ned
sanctio ₹paid
crore)
(in
cases crore)(in ₹ cases crore)(in ₹ cases cases
ned ₹ crore)
Supplies made to SEZ crore) crore)
Supplies made to SEZ
unit/developer
5 unit/developer 3,794 1,666 1,214 901 1,164 769 1,144 847
without
5 payment of 3,794 1,666 1,214 901 1,164 769 1,144 847
tax without payment of
tax
Supplies made to
Supplies made to
6 SEZ unit/developer 3,591 370 773 305 737 294 674 293
6 SEZ unit/developer 3,591 370 773 305 737 294 674 293
with payment of tax
with payment of tax
Supplier of deemed
7 Supplier of deemed 1,510 329 544 272 519 252 491 252
7 71
export 1,510 329 544 272 519 252 491 252
export71
Refund due to
Refund due to
assessment,
assessment,
8 provisional
8 provisional 989 989 223 223 399 399 129129 367367 9696 314
314 96
96
assessment
assessmentand and
appealappeal
Excess Excess
payment of of
payment
9 9 3,9693,969 1,5741,574 1,936
1,936 1,151
1,151 1,775
1,775 112
112 776
776 90
90
tax tax
Recipient of deemed
Recipient of deemed
10 10 441 441 65 65 111 111 47 47 107107 4545 102
102 45
45
export export
Tax on
Tax paid paid intra-
on intra-
state supply whichwhich
state supply is is
11 11 subsequently held
subsequently held to 105 105to 11 11 47 47 5 5 45 45 4 4 3333 44
be inter-state
be inter-state and and
vice versa
vice versa
12 Any other 13,715 5,773 5,191 3,547 4,754 369 2,771 357
12 Any other 13,715 5,773 5,191 3,547 4,754 369 2,771 357
Total 1,85,262 49,885 90,888 32,008 86,506 24,685 78,895 24,526
Total 1,85,262 49,885 90,888 32,008 86,506 24,685 78,895 24,526
Source: Compiled based on data furnished by GSTN.
5.2 Audit objectives
Audit of refund cases under GST regime was conducted to assess:
Audit of refund cases under GST regime was conducted to assess:
(i) the adequacy of Acts, Rules, notifications, circulars etc. issued in
(i) the relation
adequacy of Acts,
to grant Rules, notifications, circulars etc. issued in
of refund;
relation to grant of refund;
71 ‘Deemed Exports’ refers to supplies of goods manufactured in India (and not services) which are
notified as deemed exports under Section 147 of the CGST/SGST Act, 2017. The supplies do not leave
71 ‘Deemed Exports’
India. Deemedrefers
exportstoare
supplies of goods
not zero-rated manufactured
supplies by default,inunlike
Indiaregular
(and exports.
not services)
Hencewhich are
all supplies
notified as deemed exports under Section 147 of the CGST/SGST Act, 2017. The supplies do not
notified as supply for deemed export will be subject to levy of taxes. However, the refund of tax paid leave
India. Deemed exports
on the supply are notaszero-rated
regarded supplies
Deemed export by default, to
is admissible unlike regular
either exports.
the supplier orHence all supplies
the recipient. The
notified as supplyfor
application forrefund
deemed hasexport willby
to be filed bethe
subject to levy
supplier of taxes.
or recipient ofHowever, the refund
deemed export of tax paid
supplies.
on the supply regarded as Deemed export is admissible to either the supplier or the recipient. The
application for refund has to be filed by the supplier or recipient of deemed export supplies.
58
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(ii) the compliance of extant provisions by the tax authorities and the
efficacy of the systems in place to ensure compliance by taxpayers;
(iii) whether effective internal control mechanism existed to ensure
effectiveness of the Departmental officials in processing and payment
of refund cases.
5.3 Audit scope, sample and methodology
The Audit covered GST refund cases processed and paid by the Central tax
authorities pertaining to the period from July 2017 to July 2020. Audit also test
checked the disbursement of CGST and IGST refunds by the Central Board of
Indirect Taxes and Customs (CBIC) field formations (Central jurisdiction) on the
sanction orders issued by the State authorities in the pre-automation period.
Goods and Services Tax Network (GSTN) had provided pan-India data of refund
applications pertaining to the period August 201872 to July 2020. Since limited
data was available for the cases processed prior to 26 September 2019 (pre-
automation), the refund applications were sorted category-wise and sample
was drawn based on stratified sampling.
For refund applications filed on or after 26 September 2019 (post-automation),
a composite risk score was devised using multiple risk parameters such as
refund amount claimed, delay in sanctioning of refund, refund sanctioned to
claimed ratio and deficiency memo issued. Based on the risk score, refund
applications were selected for detailed audit. Total universe of post-
automation was also analysed and deviations noticed vis-a-vis the total
universe have been incorporated wherever possible.
The sample cases selected and audited are given in Table 5.2:
Table 5.2: Sample cases selected and audited
Selected Audited
Description No of Claim amount No of Claim Amount

Cases (in ₹ crore) Cases (in ₹ crore)
Pre-Automation period 5,797 6,695 5,451 6,320
Post-Automation period 6,486 7,673 6,482 7,669
Total 12,283 14,368 11,933 13,989

72 GSTN provided data from August 2018 when the Refund module was integrated with the back-end
systems of the tax Departments.
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The Department73 did not furnish 346 refund files (six per cent) with claim
amount of ₹ 374.77 crore to Audit. In the post-automation period, four cases
could not be audited as the additional details and information74 were not
furnished.
Reasons for non-submission of case files were stated to be misplacement of
files, submission of files for post-audit and anti-evasion wings of the
Department etc.
The draft SSCA report was issued to the Ministry of Finance for its comments
on 27 December 2021. Audit findings and recommendations were discussed
with the Ministry during the exit conference held on 7 February 2022. Further,
the reply of the Ministry to the SSCA report was received on 25 February 2022.
5.4 Non-production of records
Documentation of the receipt of application and processing of the refund claim

till its final payment constitutes a crucial component of internal control. This
helps in establishing an audit trail to watch adherence to the prescribed
provisions of the Act and rules.
The Board in its circular75 required the CBIC field formations to maintain three
registers76 for monitoring the receipt, processing of refund claims and issue of
provisional refund and final sanction order. The Board had instructed77 to
extend cooperation during audit by providing complete and comprehensive
information and complete records.
Audit noticed that out of 99 Commissionerates, 15 Commissionerates78 had
not maintained or included all the prescribed columns in the registers. Due to
non-maintenance of records, Audit could not verify adherence to the codal
provisions and the timelines prescribed. Registers of refund sanction orders
received and forwarded to the counterpart State authorities were not
furnished to Audit by four Commissionerates79. Registers of cases sent for post-
audit and details regarding when such cases were audited, were not made
73 37 Commissionerates
74 Bengaluru North, Bengaluru West and Belgaum Commissionerates
75 CBIC Circular dated 15 November 2017
76 Register in format Table 1 for recording the receipt of refund application up to the issue of
Acknowledgement, Table 2 for recording issue of Provisional refund and Table 3 for issue of final
sanction order
77 DO letter F.No.232/Misc DAPs/2018-CX-7, 26 April 2018
78 Raigad, Thane, Bhiwandi, Delhi North, Delhi East, Delhi South, Jabalpur, Guntur, Vishakhapatnam,
Patna I, Patna II, Ludhiana, Shimla, Gurugram and Panchkula

79 Vishakhapatnam, Raigad, Thane and Bhiwandi Commissionerate
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available during audit of five Commissionerates80. The list of arrears of demand

were also not made available to Audit by five Commissionerates81.
The online access to the information in GSTR-2A was not provided to Audit and
hence, the correctness or otherwise of the ITC was not ascertainable while
checking the refunds. The data of cases in which fake ITC was availed and its
encashment through use of refund was not shared with Audit and hence, the
system defects and lapses that led to such frauds could not be identified.
Ambala division of the Panchkula Commissionerate accepted the observation
and stated (May 2021) that registers were now being maintained properly with
the signature of the competent authority.
When Audit pointed this out (December 2021), the Ministry, in respect of
Patna-I Commissionerate, stated (February 2022) that the refund register was
maintained and updated (Pre-automation) and the same would be produced
at the time of next audit. Replies in respect of the remaining Commissionerates
were awaited (February 2022).
5.5 Audit criteria
Audit criteria for this Subject Specific Compliance Audit (SSCA) were drawn
from the following:
• Central Goods and Services Tax Act, 2017
• Central Goods and Services Tax Rules, 2017
• Integrated Goods and Services Tax Act, 2017
• Government notifications/circulars/instructions issued by the CBIC from
time to time.
Audit Findings
5.6 Systemic issues
5.6.1 Deficiencies in automated refund module
It is internationally recognised that there should be a balance between client

service levels and the prevention and mitigation of fraudulent activities. Tax
refunds pose challenges to achieve good standards of service in processing of
legitimate refund claims and in ensuring detection of incorrect and fraudulent
claims prior to payment and post-payment. Fraudulent refunds, including by
fictitious or invalid entities, have significant consequences if undetected and
80 Guntur, North division of Vishakhapatnam, Bhiwandi, Raigad and Thane Commissionerates

81 Raigad, Thane, Bhiwandi, Guntur and Vishakhapatnam Commissionerate
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untreated. The relative ease of electronic filing and refund may pose additional
risks.
Office of the Directorate General of Analytics and Risk Management (DGARM)
had released (July 2020) a list containing 9,757 taxpayers who had monetized
the fake ITC taken by them. It also included a list of 3,208 taxpayers who were
issuing fake invoices. In the financial years 2018-19 and 2019-20, the aggregate
quantum of ITC frauds82 was ₹ 23,193.66 crore, whereas in the financial year
2020-2183, about 8000 cases were detected involving fake ITC of over ₹ 35,000
crore. One of the fraudulent cases was unearthed in Nagpur against three
firms involved in passing fraudulent ITC of ₹ 214 crore and claiming refund of
this fraudulent ITC.
Audit observed that there exists a mechanism to match ITC availed by a
taxpayer with the GSTR-1 returns filed by the suppliers and to identify
fraudulent cases through data analytics after the amount has been paid.
However, in Audit’s opinion, adequate systems were not in place to prevent
and mitigate such frauds by using real time/near real time data analytics so as
to alert the tax officials before sanction of refunds. CBIC in its circular84 stated
that several cases of monetisation of fraudulently obtained credit or ineligible
credit through refund of IGST on exports of goods were detected in the past
months. On verification, several such exporters were found to be non-existent
in a large number of cases. In all these cases, it was found that ITC was taken
by the exporters on the basis of fake invoices and IGST on exports was paid
using such fake ITC.
This showed that in some cases, new GST registrants, without credible
antecedents, were getting the refunds with limited scrutiny or verification of
the place of registration. Audit further noticed lack of adequate matching of
net ITC shown in the refund application with the ITC amount available as per
GSTR-2A, and grant of refund without ascertaining the status of return filing.
Audit analysed the pan-India data furnished by GSTN and observed the
following:
• In respect of 2,656 cases (out of 31,173 cases85) pertaining to the period
from September 2019 to July 2020 where the refund amount sanctioned
was ₹ 6,121.87 crore, the net ITC shown in the refund application filed
82 Data.gov.in
83 Press Information Bureau of India, CGST Zones and Directorate General of GST Intelligence booked
about 8000 cases involving fake ITC of over ₹ 35000 crore in FY 2020-21 July2021.
https://pib.gov.in/PressReleseDetailm.aspx?PRID=1735095
84 Circular dated 23 January 2020
85 GSTR 2A was available in 31,173 refund cases falling under the category of Inverted duty structure,
Export without payment of duty and Exports by SEZ without payment of duty in GSTN
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online was more than the amount shown in GSTR 2A86 by ₹ 11,851.48
crore.
• Refund of ₹ 6,113.63 crore was sanctioned to 56,513 taxpayers who did
not file GSTR 187 or GSTR 3B88 or both before filing the refund
applications, which is mandated under Section 54 (10) of the CGST Act.
• 29,839 out of 51,064 taxpayers who were sanctioned refund of
₹ 8,037.19 crore did not furnish the details of refund claims filed and
refund received in Part VI of the Annual Return (GSTR 9).
It can be seen from the above that although the Department could have
leveraged and correlated their own database to identify non-compliance,
there was a lack of an effective mechanism to red flag such cases and alert the
proper officer to carry out detailed scrutiny to ensure that the taxpayer has
complied with the provisions of the Act and rules, before refunds were
sanctioned and paid.
Audit also noticed in certain cases that although suspicious refund claims were
not supported by adequate/relevant documents to establish the veracity of
the claims, the concerned officials did not scrutinise these cases with due care
while sanctioning refunds.
When Audit pointed this out (December 2021), the Ministry stated (February
2022) that during the initial phases of implementation of GST, the focus of the
Department was on facilitation rather than enforcement. However, from 2019
onwards, DGARM has been generating various red flag reports which are
forwarded to field formations for taking necessary action. Further, regarding
the audit observation that ITC had been availed more than GSTR-2A, Ministry
stated that refund could exceed the ITC available in GSTR-2A inter-alia on
credit distributed by ISD, imports, RCM supplies, and missing invoices (refund
on which was available till 31 March 2020 on the basis of furnishing of copy of
missing invoices to the proper officer along with refund claim). Regarding the
audit observation that the details of refund claimed and received had not been
furnished in the annual return, Ministry stated that filling up of details of
refund claimed and received in Table 15A to 15D of FORM GSTR-9 for the FY
86 GSTR 2A is automatically generated for each taxpayer in the GST portal. When a seller files his GSTR-1,
the information is captured in GSTR 2A of the purchaser, which incorporates information of goods
and/or services which have been purchased in a given month from the seller’s GSTR 1. The taxpayer
needs to refer to GSTR-2A for input tax credit details.
87 The Goods and Services Tax Return 1(GSTR 1) is a return that each registered tax payer needs to file
every month/quarter. It must contain the details of all sales and supply of goods and services made by
the tax payer during the tax period.
88 GSTR-3B is a self-declared summary GST return filed every month. The particulars such as inward and
outward supplies of goods or services, input tax credit availed, tax payable, tax paid, etc. are required
to be declared in such return.
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2017-18, 2018-19 and 2019-20 was made optional vide CGST (Seventh
Amendment) Rules, 2019.
Ministry’s reply is not acceptable in view of the fact that the seventh
amendment to the CGST Rules was notified on 29 August 2021 whereas the
due date for furnishing Annual Return for the period 2017-18 was 5/7 February
2020. As regards the comparison of the amount of ITC refunded vis-à-vis the
amount available as per GSTR-2A, Audit has not commented on the validity of
individual refund claims. Audit is of the view that there should be a mechanism
to automatically red-flag such claims, where credit available in GSTR-2A is less
than the refund claimed, so that the Department could examine such claims in
detail before sanction of refunds. As regards sanction of refunds without
checking the return filing status, Ministry did not offer any comments.
Illustrative cases are discussed in the succeeding paragraphs.
5.6.1.1 Sanction of refunds without proper scrutiny
CBIC vide Office Memorandum issued on 12 May 2019 cautioned the field
formations on the risk of encashment of ITC availed on fake invoices by
obtaining IGST refund or refund of unutilized accumulated ITC.
(A) While examining the refund cases under the Mumbai West Commissionerate,
Audit came across 18 refund applications under the category of zero-rated
supplies, submitted during the period December 2019 to November 2020, by nine
taxpayers who were granted registration between the period June 2019 to June
2020. These cases appeared to be suspicious due to the following shortcomings:
• The nine taxpayers who were sanctioned the refund of ₹ 12.01 crore were
sole proprietary concerns whose e-KYC and Aadhar were not
authenticated. Refund pre-application form, introduced in February
202089 that captures Income Tax details, export data and Aadhar number
etc., of the taxpayers, was not filled-in and submitted by any of the
taxpayers. The Divisional officer sanctioned the refunds without
delegating the verification of claims to the subordinate officers.
• The registrations granted to eight taxpayers were cancelled by the proper

officer on application made by the taxpayer90 (July 2020 to December
89 Newsletter of Director General of Systems and Data Management of February 2020

90 Section 29 (1) provides for cancellation by the taxpayer if the business is discontinued, transferred fully
for any reason including death of proprietor, amalgamated with other legal entity, demerged or
otherwise disposed of; or there is any change in the constitution of the business; or the taxable person
is no longer liable to be registered under Section 22 or Section 24 or intends to opt out of the
registration voluntarily.
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2020) after getting the refund of ₹ 11.60 crore and in the remaining one
case, the registration was cancelled suo moto by the Department. The
Department neither verified the receipt of export proceeds as required
under Rule 96B before accepting 91 the cancellation nor directed the
taxpayer to file the annual returns in Form GSTR 9 despite the turnover in
eight cases exceeding ₹ 2 crore, as required under Section 44.
• The refunds claimed were based on ITC on purchases made through 15

suppliers who gave fake invoices. Department had cancelled the
registration of 10 of these suppliers and the other five had stopped filing
the returns. The suppliers filed returns only for three to four months and
stopped filing the returns after the taxpayers received the refund.
• The certificate92 of the CA did not contain the Unique Document
Identification Number (UDIN) of the Institute of Chartered Accountants of
India (ICAI) mandated by the Institute. The CA had been penalised by
Customs Excise and Service Tax Appellate Tribunal (CESTAT) in November
2014 for issuing Export Certificate to a client without verifying the
supporting documents or their correctness.
• In six cases, the foreign buyer was common, irrespective of the destination
of the consignment. The Customs House Agents (CHA) and transporters
were common in those six cases. This suggested that transporters, CHAs
and CAs acted in collusion to prefer these claims.
Final refunds in all cases were granted, skipping the provisional refund. The
refunds were granted in 14 cases in an unusually short time of seven days or
less.
• In five cases, the refund had been sanctioned within half an hour of
acknowledgement, and in two out of these five cases, the sanction orders
were issued late at midnight.
• Refund in two cases was granted on the same day of receipt of application.
Sanction orders were issued even on holidays. The refund application in
two other cases were acknowledged and final sanction order issued within
half an hour at midnight.
Taxpayers with such a large export turnover of ₹ 166.64 crore and refund claim
of ₹ 12.01 crore are unlikely to close their business abruptly, unless their sole
motive was to take refund and disappear. The antecedents of the taxpayers,
91 Notification dated 23 March 2020

92 A certificate in Annexure-2 of Form GST RFD-01 issued by a Chartered Accountant or a Cost
Accountant under Rule 89(2)(m) of CGST Rules, 2017 is required where refund claimed
exceeds ₹ 2 lakh for the purpose of certifying that incidence of such tax and interest had not
been passed on to any other person.
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input providers and the CA who issued the certificate were dubious. Thus,
refunds of ₹ 12.01 crore were sanctioned without proper verification.
On this being pointed out in audit (May to July 2021), Mumbai West
Commissionerate stated (August 2021) that the sanctioning officer is an officer
with a limited reach and if the suppliers, of the taxpayer claiming refunds, fall
outside the jurisdiction of the sanctioning authority, it becomes impossible to
view the antecedents of such suppliers. A massive drive was conducted from
August, 2020 wherein hundreds of registrations were cancelled which were
either inactive, non-filers or on application of the taxpayer on priority basis.
The Commissionerate further added that the refund application looked less
suspicious when we look at the timelines of these refunds. The refund
applications were filed in a staggered manner and spread over a period of
around one year which makes it harder to correlate the facts of one case to
other. The taxpayers were able to mask themselves well and these details were
not possible for the Departmental officer to correlate with each other. Due
diligence was exercised in sanctioning all refund claims and within the
framework of provisions of law.
The reply is not acceptable, as refunds were sanctioned in unusually short
period of time despite several red flags. Although delegation is not explicitly
provided in the rules, it was seen from the application history of refund cases
checked in audit that all Divisional officers normally delegated the work of
verification of refund claims to their subordinates to ensure detailed
verification of the refund claims. However, this procedure was not followed in
any of these suspicious refunds. The Department accepted the cancellation of
registration without verifying the receipt of foreign exchange and annual
returns. The taxpayers also did not file the final return in Form GSTR 10 that
was required to be filed with three months of cancellation of registration as
per Rule 45. Further, the reply of Commissionerates underscores the audit
view that an effective mechanism to red flag high risk cases needs to be
implemented to alert the proper officer before sanction of refunds.
An illustrative case is discussed below:
(a) A taxpayer applied (11 February 2020) for refund of
₹ 57.60 lakh under the category of ‘Export of goods without payment of tax’
for the tax period December 2019 and deficiency memo was issued on 12
February 2020. The taxpayer resubmitted the application on 14 February 2020.
The acknowledgement was issued on the same day and final sanction was
granted within five working days on 21 February 2020 without delegating the
verification work to the Inspector or Superintendent. The ITC refunded was
based on purchase invoices issued by two firms, both of whom had registered
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on 21 November 2019. Department suo moto cancelled their registration

(November 2019 and December 2020), indicating that they were fake/bogus
suppliers.
(b) Another application for refund of ₹ 96.03 lakh was filed on 14 August
2020 by the same taxpayer for the tax period July 2020. The application was
acknowledged on 16 August 2020 (Sunday). The refund was sanctioned within
a short time of half an hour from acknowledgement. The accumulated ITC,
which was refunded, was based on the purchases made from five suppliers.
Two of the suppliers had surrendered their registrations in August 2020,
registration of the other two were suspended (cancelled in August 2020), while
in one case, registration was suo moto cancelled by the Department (June
2020). All these deficiencies indicated that proper verification was not carried
out before the sanction and payment of refund.
When Audit pointed this out (December 2021), the Ministry contested the
audit observation and stated (February 2022) that refunds had been
sanctioned on the basis of the documents in term of Circular dated 26 October
2018.
Ministry further stated that Board had issued several directions that the
refunds need to be sanctioned on high priority as it was a time bound matter.
Although the time limit to sanction the refund claim is of 60 days, but so as to
facilitate trade, in the tough COVID times and to provide much needed liquidity
to the trade, field formations were asked to clear the refund claim
expeditiously. Further, to carry out the mandate of the Ministry to clear all the
refund on priority, remote access to AIO was provided to the officers during
the COVID-19 lockdown period. Officers worked even from home and
struggled to clear the refund claims on Sunday and other holidays even in
night. During the said period, because of outbreak of Covid-19, offices were
working with the skeleton strength.
Ministry’s reply is not acceptable. While refunds need to be sanctioned on high
priority according to strict timelines, a balance has to be struck between
speedy processing of refund and verification of high risk refund claims. In the
illustrated cases, refunds were sanctioned in an unusually shot time even
though there were several red flags like new taxpayers, small number of
vendors, non-submission of the refund pre-application form, different address
given in purchase invoice than the principal place of business, no input tax
credit of essential services for exports like transportation, customs house
agents etc. in GSTR-2A, export invoices showing and address that does not
come under the jurisdiction of the division sanctioning the refunds etc.
Therefore, due diligence for verification of correctness of the refund
applications was not done in the above mentioned cases.
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Recommendation 1: A comprehensive profiling of the taxpayers needs to be

implemented by integrating data from both internal and external systems
such as Income Tax, Directorate General of Foreign Trade, and Ministry of
Corporate Affairs93. A system of real time/near real time red-flagging of high-
risk taxpayers/refunds may be implemented in the refund related modules to
avoid refunds of fake ITC.
Ministry, regarding the Audit recommendation, stated (February 2022), that

the Department had taken various measures, on the basis of recommendation
of GST Council, to reduce such fraudulent refunds. The refund of unutilised ITC
had been restricted to the ITC available in GSTR-2A of the relevant period from
31 March 2020. Aadhaar authentication had been made mandatory for filing
of GST refund claims for all taxpayers with effect from 1 January 2022. CGST
Rules, 2017 had been amended with effect from 24 September 2021 to provide
for refund to be disbursed in the same bank account, which is in the name and
PAN of the applicant and on which registration has been obtained and in case
of proprietorship firm, the bank account has also been linked with the
Aadhaar. Ministry further stated that flagging of high-risk taxpayers was
already being done by DGARM through red flag reports based upon various
risk parameters. As regards audit recommendation regarding real-time
flagging of high risk taxpayers/ refund claims in the refund module, the
Ministry stated that the matter would be taken up with GSTN and DG
(Systems).
(c) In Lucknow Commissionerate, Audit observed that although the

Department realised that a refund claim was prima facie based on suspicious
ITC claim, it did not carry out detailed investigation to protect the interest of
revenue.
The case is illustrated below:
A taxpayer under the Lucknow Commissionerate claimed (20 February 2020)
refund of the accumulated ITC of ₹ 1.84 crore on export of goods/services
without payment of tax for the period July to August 2019. Provisional refund
of ₹ 1.66 crore was paid on 5 March 2020. The proper officer issued Show
Cause Notice (SCN) on 7 April 2020 for the ITC shown in GSTR 2A on which
the suppliers of the taxpayers had not paid the GST amount, indicating that
they were not genuine. The taxpayer did not respond to the SCN, and the
adjudicating authority passed the order rejecting ITC of ₹ 18.41 lakh and
recovery of ITC of the remaining refund amount of ₹ 18.41 lakh (10 per cent
of sanctioned amount).
93 Report of the High power Committee, October 2014 (Driving information system for holistic tax
initiatives)
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Audit examined the refund claim along with the details of invoices, included in
Annexure A, on which the refund of ITC of ₹ 1.83 crore was claimed by the
taxpayer. Audit noticed that the taxpayer had taken ITC of ₹ 1.83 crore
pertaining to 572 invoices having purchase value of ₹ 36.52 crore. The GSTR 3B
of the suppliers of the taxpayer, however, showed supplies of only ₹ 1.38 crore.
Surat Commissionerate, on enquiry, intimated Audit (August 2021) that two
suppliers were not found at the principal place of business, and the registration
of the third supplier had been cancelled in January 2019. The proper officer
failed to disallow this amount, recovery for which needs to be implemented by
the Department. .
When Audit pointed this out (July 2021/December 2021), the Ministry stated
(February 2022) that the recovery proceeding in the matter shall be initiated
once the Show Cause Notice issued gets adjudicated. Ministry’s reply is,
however, silent on the reasons as to why the Department failed to disallow the
excess refund amount claimed. Even a cursory verification and cross-check
with the GST Portal by the sanctioning authority would have resulted in the
detection of the fake claim of the taxpayer as the registration of three major
suppliers had been cancelled even before submission of claims by the
taxpayer.
5.6.1.2 Sanction of Refunds on the basis of incomplete documents leading to

fraudulent claims
Application of Refund in Form RFD 01A should include statement (Form

Annexure A) of supplier invoices on which ITC is availed for, the relevant tax
period for which refund is claimed in the format prescribed in Circular 94.
Refunds are to be made by the Department after ensuring that the taxpayer
has uploaded Annexure A along with refund on GST portal.
Under the Faridabad Commissionerate, six tobacco suppliers filed (December
2018 to June 2019) refund claims of ₹ 27.38 crore and the Department
sanctioned (March 2019 to July 2019) refunds/provisional refunds amounting
to ₹ 26.43 crore:
94 Circular dated 4 September 2018
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Table 5.3: Details of refunds claimed on incomplete documents
Sl. Category Date of Amount sanctioned

No. sanction (in ₹ crore)
1 EXPWOP95 18-03-2019 4.96
2 EXPWOP 27-06-2019 6.11
3 INVITC96 15-07-2019 4.16
4 EXPWOP 08-08-2019 2.58
5 SEZWOP97 29-11-2019 4.33
6 EXPWOP 18-07-2019 4.29
Total 26.43
Audit examination revealed that the claimants were new registrants and had
applied for refunds within a few days after taking GST registration without
uploading the mandatory Annexure A, which requires details of inputs invoices
and ITC availed thereon. Refunds were sanctioned by the Department without
ensuring submission of this Annexure. Thus, due diligence was not exercised
by the Department before sanctioning refunds.
After disbursement of refunds, it came to the notice of the Department
through physical verification of Director General of GST Intelligence (DGGI)
that these claimants had applied for refunds on fake documents. The refund
claims were processed without diligent scrutiny which led to payment of
refund/provisional refund to fraudulent claimants.
When Audit pointed this out (December 2021), the Ministry stated (February
2022) that in the case of one taxpayer, notice for recovery of refund amount
had been issued to the taxpayer. The remaining five cases were under
investigation by DGGI.
One such case is illustrated below:
A taxpayer, an alleged habitual offender, was issued SCN for operating a fake
firm and passing fake ITC of ₹ 26.53 crore98. Department cancelled its
registration on 1 June 2018. The taxpayer, in his statements dated 7 June 2018
and 6 July 2018 before Directorate of Revenue Intelligence (DRI), admitted to
be the owner of a fake and non-existing firm in the name of his mother as
dummy proprietor. He had also admitted that he defrauded the Department
by forming different firms and opening different bank accounts with two
different PAN numbers. He also received drawback by forging Certificate of
origin for which the SCN was issued in March 2019. Despite such antecedents
of the taxpayer, the registration granted to his sole proprietary concern
95 Export without payment of tax

96 Inverted Duty Structure
97 Special Economic Zone without payment of tax
98 PIB press note dated 10 February 2021.
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(on 4 March 2018) was not revoked in July 2018 and provisional refund of
₹ 20.07 crore was released during May 2019. The final refund of ₹ 1.55 crore
was paid during the period April 2019 to June 2019 even after it became
evident that the person was involved in claiming drawback on forged
documents. This indicated lack of proper coordination between various wings
of CBIC. Lack of intelligence sharing had led to individuals exploiting the system
and getting refunds on fake ITC.
the issue was being examined.
5.6.1.3 Refunds granted to taxpayer who went untraceable after fraud
In order to curb fly-by-night operators who take advantage of easy registration

system (three working days and no field inspection) and to stop impersonation
and check bogus billing through ‘laptop shops99‘, Notification100 dated 23
March 2020 was issued which provided for Aadhar authentication in which (a)
an individual; (b) authorised signatory of all types; (c) Managing and
Authorised partners of a partnership firm; and (d) Karta of an Hindu undivided
family shall undergo authentication, of Aadhaar number, as specified in Rule 8
of the CGST Rules, 2017, in order to be eligible for registration. Section 25 (6)
was amended with effect from 1 January 2020 to provide that every registered
person shall undergo authentication, or furnish proof of possession of Aadhaar
number.
Prior to this notification, registrations were granted without verification of the
Aadhar or e-KYC documents which led to registration of unscrupulous
elements. Subsequently, by the time Department detected (through data
analytics or anti-evasion activities) fraudulent claims by such elements, they
would become untraceable. Thus, recovery of fraudulent refund was not
possible in most of these cases. One such illustrative case of fraudulent claim
is detailed below:
A proprietary concern was registered on 1 October 2019 under the Delhi West
Commissionerate. The proprietor mentioned his legal name as “Monu”. The
Aadhar card and e-KYC of this proprietary concern was not verified by the
Department. Three refund claims amounting to ₹ 89.28 lakh were filed in
March and April 2020, and the refund was obtained under the category of
Inverted Duty Structure for supply of footwear. The taxpayer had purchased
goods from seven suppliers, all of whom had registered themselves in January
2020.
99 NACIN presentation dated 22 August 2020.

100 Notifications dated 23 March 2020
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Audit scrutiny revealed that only one supplier was active. The registrations of
five suppliers had been cancelled suo moto and one supplier’s registration had
been suspended by the Department (between January 2020 and December
2020). The taxpayers stopped filing returns from July 2020. Thus, it is apparent
that the refund claims were based on fake ITC invoices.
On this being pointed out in audit (February 2021 and April 2021/December
2021), the Ministry stated (February 2022) that the matter was under
investigation by Anti Evasion Branch. Further, letters to all three banks of the
taxpayer had been sent for providing bank account statements and KYC details.
5.6.1.4 Non-recovery of refund amounts in the absence of mechanism to

monitor the realisation of export proceeds
The Joint Committee on Business Process101 for refund application in its Report
of August 2015 recommended that, as per the Reserve Bank of India (RBI)
guidelines, the exporter has a time of one year from the date of export, within
which the export proceeds are required to be remitted into India. Bank
Realisation Certificate (BRC) will not be available till the time export proceeds
are realized. It was recommended that submission of BRC may not be insisted
upon at the time of filing of refund application and post facto verification can
be carried out by the tax authorities. The refund in such cases should be subject
to submission of BRC details within a period of maximum one year or such
period as extended by RBI from the date of export. If such details are not
submitted at the portal at which the refund application was made, the portal
should generate an alert/report for the concerned tax authorities to take up
appropriate action.
In case of any short receipt of export receipts, necessary action for recovery of
proportionate refunded amount may be taken. BRC, however, may be verified
at the time of exports itself if the payment has already been received in
advance. It was also recommended that e-BRC module may be integrated in
the Refund process under GST.
Rule 96B of the CGST Rules inserted vide Notification dated 23 March 2020
inter alia provides that where a claimant has received the refund of unutilised
input tax credit on account of export of goods but the sale proceeds in respect
of such export goods have not been realised in India within the period allowed
under the Foreign Exchange Management Act, 1999 (i.e. 180 days), the
claimant shall deposit the refunded amount to the extent of non-realisation of
sale proceeds, along with applicable interest, failing which the amount
101 An empowered committee was constituted under the co-convenorship of Additional Secretary
(Revenue) to give recommendations on refund process in GST regime.
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refunded shall be recovered in accordance with the provisions of Section 73 or

74 of the Act alongwith interest.
The GSTN102 signed (October 2016) a Memorandum of Understanding (MOU)
with Director General of Foreign Trade (DGFT) for sharing foreign realisation
(e-BRC) and Import-Export Code. e-BRC is issued by a bank as confirmation
that the exporter has received payment from the buyer against the export
of goods or services. The DGFT implements the e-BRC platform, which
allows banks to electronically upload information pertaining to foreign
exchange realisation related to exports on the DGFT server. This
information is transmitted through a digital certificate – the e-BRC.
Audit examination revealed that no verification system was implemented to
ascertain the receipt of proceeds from exports after grant of refund. Although
GSTN had access to the e-BRC, it was not integrated with the GST system as
recommended by the Joint Committee on Business Process. The details of
receipt of foreign exchange were also not obtained from the taxpayers for
ex-post facto verification. Linking of e-BRC is an important tool for identifying
fake exporters, exporters who get refunds but not realising export proceeds
and cases where the export proceeds are lower than the amount shown in the
tax invoice.
Export Outstanding Statement (XOS) of RBI as of December 2020 was cross-
verified in two Commissionerates and it was observed that in three cases 103,
the export proceeds of ₹ 2.24 crore against five shipping bills were pending
realization. Despite this, neither had the claimants deposited refund amount
related to such exports nor was any action initiated by the Department to
recover such amount from the claimant. This resulted in non-recovery of
refunded amount of ₹ 44.79 lakh.
On this being pointed out in audit (February 2021/December 2021), Ministry
(February 2022) accepted the observation and intimated recovery of ₹ 0.57
lakh in two cases. Ministry further stated that there was no system from where
officers could identify that the sale proceeds in respect of exported goods have
not been realised. Ministry’s reply in respect of one case is awaited (February
2022).
Recommendation 2: The e-BRC module may be integrated with GSTN and

cases where export proceeds have not been received within the prescribed
102 PIB press note dated 28-October-2016 10:22 IST that GSTN signed MoU with DGFT for sharing of
foreign exchange realisation data
103 Jaipur Commissionerate
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time may be examined for overpayment of refund. This will also help prevent
possible frauds by identifying taxpayers who sought refunds on fake exports.
Recommendation 3: A robust red flag system may be introduced by linking

various systems such as ICEGATE, e-BRC and XOS statement etc. to alert
proper officers in respect of non-compliant taxpayers for blocking their
refunds and initiating recovery of ineligible refunds already sanctioned.
Ministry, with respect to audit recommendations, stated (February 2022) that

the matter would be taken up with GSTN and DG (Systems).
5.6.2 Incorrect order of sanction due to non-compliance with Board’s

instructions for priority to IGST over CGST/SGST
CBIC Circular dated 4 September 2018 provides for debit of the refund amount
of accumulated ITC by the claimant from its electronic ledger in the following
order –
(a) Integrated Tax, to the extent of balance available;
(b) Central tax and State tax/Union Territory tax, equally to the extent of
balance available and in the event of a shortfall in the balance available
in a particular electronic credit ledger (say, Central tax), the differential
amount is to be debited from the other electronic credit ledger.
Audit examination revealed that in 188 cases pertaining to 14
Commissionerates104, the claimants had filed refund claims of ₹ 230.39 crore
without debiting the Electronic Credit Ledger (ECL) in the aforesaid prescribed
manner despite having sufficient balance in the respective heads.
Thus, non-observance of Board’s circular resulted in incorrect order of sanction
of refund and belated allocation of funds under IGST head to CGST/ SGST head.
When Audit pointed this out (January and February 2021), Department termed
(January, 2021 & March, 2021) it a procedural lapse stating that refund was
sanctioned as per law and there was no revenue effect. Further, it was stated
that the aforesaid circular itself stated that its non-compliance should not be
viewed seriously. The Ministry informed (February 2022) that its view would
be submitted shortly.
Audit noticed that even after a passage of more than three years and making
refund process fully automated, the Department had not ensured that the
104 Coimbatore, Kochi, Kozhikode, Thiruvanthapuram, Salem, Ranga Reddy, Tiruchirapalli, Chenai Outer,
Pune I, Goa, Bhiwandi, Kolhapur, Mumbai East, Guntur
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system validated and accepted the debits in ECL in the prescribed order as
intended by the Board.
Recommendation 4: The Department may consider introducing requisite

validations in the refund module to ensure that the eligible amounts are
debited in the prescribed order.
Ministry, with respect to audit recommendation, stated (February 2022) that

the matter of introducing validation regarding order of debit from electronic
credit ledger for filing refund in refund module would be taken up with GSTN.
5.6.3 Double payment of GST refunds on cross jurisdictional claims
Section 6(1) of the CGST Act, 2017 specifies that the officers appointed under
the State Goods and Services Tax Act (SGST) or Union Territory Goods and
Services Tax Act (UTGST) are authorized to be the proper officers for the
purpose of this Act, subject to such conditions as the Government shall, on the
recommendations of the GST Council, by notification specified. In this regard,
Notification dated 13 October 2017 authorizes officers appointed under SGST
Act/UTGST Act to be the authorized officers for the purposes of sections 54
and 55 of the said Act, who shall act as proper officers for the purpose of
sanctioning of refunds under these sections except for Rule 96 of CGST Rules
(Exports of goods with payment of IGST).
Based on the above provisions, the officers appointed under SGST/UTGST Act
are empowered to sanction refund of the CGST or IGST components of claims
in respect of taxpayers coming under their respective jurisdiction. Similarly, the
proper officer under the CGST Act105 is empowered to sanction refund of
SGST/UTGST components of the claims pertaining to the taxpayers under his
jurisdiction. The Chief Controller of Accounts in his office memorandums 106
addressed to Pr. Chief Commissioners of GST, Commissioners of GST, Chief
Controller of Accounts and PAO advised divisional authorities to maintain
proper records to minimise the risk of re-issuance and reconcile the refunds
on monthly basis with PAO citing incidents of refund orders and payment
advices being issued more than once.
The PFMS through which the payment of refund is initiated allows for
download of the data of disbursement in Excel format which can be analysed
for identifying cases of double payment. This can then be corroborated with
105 Section 6 (1)

106 Pr. CCA/CBEC/GST-IT/ePAO Refunds/33/2017-18 dated 4 June 2018 and Pr. CCA/CBEC/GST-IT/ePAO
Refunds/33/2017-18/656 dated 28 December 2018.
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the sanction orders attached with the bills to confirm whether the payments
relate to the same sanction order.
Audit analysed the data of PFMS relating to GST refunds pertaining to the
period from July 2017 to September 2019 (Pre-automation) received from 34
Commissionerates107 and followed it up with substantive audit of the payment
process. Audit noticed 410 instances of double payments amounting to ₹ 13.73
crore, out of which in 19 cases, the department recovered ₹ 1.03 crores after
it was pointed out in audit.
In this regard, Audit observed the following lapses:
• In these cases, either the sanction orders were received twice from the
State jurisdictional offices or payments were initiated twice on the same
base documents. In one case, both the Central and State Authorities
refunded the amount to the same taxpayer for the same period without
due verification. In some cases, the payment for the same period was
released based on different sanction orders.
• In respect of 23 cases, the taxpayers had suo moto returned ₹ 17.10 crore
received by them twice.
Although the taxpayers intimated the Department of double payment, there
was nothing on record to show that the Department investigated and analysed
the reasons for double payments so that corrective measures to improve the
system be initiated. This reflected a control deficiency in the manual payment
process pertaining to cross-jurisdictional claims of CGST and IGST components
in these Commissionerates. One illustrative cases in this regard are as follows:
(a) A taxpayer assigned to the jurisdiction of State GST Department, had
claimed refund for January, February and March 2018 both with the State and
Central jurisdictions. Both the jurisdictional authorities sanctioned the
payment. Sanctioning the claim by the central tax authorities was contrary to
the instructions of CBIC. This resulted in excess payment of ₹ 1.74 crore.
Further, the taxpayer was sanctioned provisional refund of CGST worth
₹ 62.73 lakh and IGST worth ₹ 59.95 lakh by the State tax authorities on
11 June 2019. Bengaluru North Central Tax Commissionerate generated the
bills twice for payment of CGST/IGST amounts on two different dates without
107 Agra, Ahmedabad North, Ahmedabad South, Belgaum, Bengaluru East, Bengaluru North, Bengaluru
North West, Bengaluru South, Bengaluru West, Bhavnagar, Chennai North, Chennai Outer, Chennai
South, Coimbatore, Gandhinagar, Ghaziabad, Jodhpur, Kanpur, Kochi, Kozhikode, Kutch, Madurai,
Mumbai East, Mumbai West, Mysuru, Mangalore, Noida, Pune I, Salem, Surat, Thiruvananthapuram,
Tiruchirapalli, Vadodara-I and Vadodara-II.
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proper verification before transmitting them to the Pay and Accounts Officer
(PAO) for payment. This resulted in excess payment of ₹ 1.23 crore.
Audit pointed this out in February 2021 and December 2021. Ministry, for the
refund claims pertaining to January 2018, February 2018 and March 2018,
stated (February 2022) that the entire amount was recovered from the
assessee well before the intervention of Audit. Further, the assessee had also
paid the interest amount on the erroneously sanctioned refund amount in
January 2022. Regarding refund claims for the period October 2018 and
November 2018, Ministry stated that double refund was sanctioned due to
oversight. However, the erroneously sanctioned amount was recovered from
the assessee immediately.
(b) Audit noticed in Ahmedabad South Commissionerate that a taxpayer
was issued refund twice on three occasions amounting to ₹ 7.72 crore, which
they returned suo moto. Similarly, another taxpayer was given refund of
₹ 43.74 lakh twice in September 2019 which they returned in December 2019
suo moto.
The Department neither noticed the double payment nor took immediate
action to reconcile refund bills with that of PFMS data, even when the
taxpayers were returning the refunds twice paid to them. The Department also
did not take suitable steps to improve and correct the system lapse to avoid
recurrence of such double payments. Audit came across 10 occasions of
double payments amounting to ₹ 12.20 crore, out of which ₹ 8.16 crore was
returned suo moto by the taxpayers, while ₹ 6.44 lakh was recovered after it
was pointed out in audit and in three cases, recovery of ₹ 4.07 crore was
pending.
the reply would follow.
Recommendation 5: A comprehensive verification of PFMS data relating to

the pre-automaton period may be undertaken in all Commissionerates to
identify double payment cases that may have occurred due to lack of
reconciliation.

the issue would be taken up with the field formations for necessary action.
Advisory was being issued to field formations for checking the double payment
cases.
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5.6.4 Delay/non-conduct of post-audit of refund claims
Internal audit is an independent management function, which involves a

continuous and critical appraisal of the functioning of an entity. Internal Audit,
being an integral part of the internal control system, has an important role to
play in ensuring compliance with prescribed rules, regulations and guidelines.
According to CBIC Circular108, refund orders are subject to post-audit based on
extant guidelines of the erstwhile Central Excise Laws, which requires all
refund claim papers be sent by the Divisional Deputy/Assistant Commissioner
to the Commissionerate Headquarters for post-audit within a week of payment
irrespective of the amount involved. As per guidelines, post-audit should
completed before the expiry of three months from the date of payment. Audit
examination revealed the following shortcomings:
• Detailed instructions and guidelines for post-audit of refund cases have
not been formulated by the Department after roll out of GST.
• Proper documentation of refund cases sent for post-audit and the current
status of post-audit is not maintained in the CBIC field formations.
• Analysis of 8,448 pre-automation cases disclosed that 4,414 cases were
not sent for post-audit. As for 449 cases, Audit could not ascertain
whether the cases were sent for post-audit or not, as no details were
available on the file.
In 2,363 cases, there were delays up to 649 days in carrying out the post-
audit.
In respect of the post-automation period, none of the cases were post-audited
by the Department. Besides contravention of Board’s instructions, non-
conduct/delayed conduct of post-audit has the risk of over-payment remaining
undetected or getting time-barred.
On this being pointed out in audit (December 2020 to September 2021),
Department accepted the audit observation in 426 cases pertaining to 23
Commissionerates.
In one case, the Department did not accept the observation and contended
that the audit observation was raised on the basis of date of issue of sanction
order and not on the basis of date of issue of payment advice. The reply is not
acceptable, as the Department neither furnished the date of payment nor the
reason for inordinate delay in issuing the payment advice. In the remaining
1,144 cases, pertaining to 45 Commissionerates, the replies are awaited
(February 2022).
108 Circular dated 15 November 2017
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In Mumbai West Commissionerate, out of the 3,051 cases of refunds

processed for payment of ₹ 638.11 crore, only 104 cases were sent for post-
audit. None of the post-automation cases were sent for post-audit, despite the
instructions (January 2020) of the Chief Commissioner of GST, Mumbai that all
the refund orders should be reviewed by the Commissioner as well as post-
audited as per extant rules. However, Audit noticed that none of the cases
were reviewed by the Commissioner.
In reply, the Commissionerate stated that all cases pertaining to 2017-18 have
been sent for post- audit and for subsequent period, files were being sent.
They further added that for audit of post- automation cases, no guidelines
have been specified and the GST system has no option for the Divisional Officer
to transfer the task to the post- audit section. The GST system is not linked to
review section for review.
This indicated that even after four years of implementation of GST, a proper
system of review and post-audit had not been effectively institutionalized so
that the Department may rectify mistakes in time.
Recommendation 6: A robust post-audit system based on detailed codified

manual of instructions, checklist and SOP may be put in place. A proper
module for post-audit of refunds may be introduced in the GST system for
effective monitoring.

field formations had been instructed vide Circular dated 15 November 2017 to
conduct post-audit of the refund claims as per the extant guidelines i.e. the
guidelines issued under pre-GST regime. Guidelines regarding post-audit of
refund orders in the automated regime were under preparation. Ministry
further informed that the matter had also been taken up with DG (Systems) to
operationalize the post-audit module under the review module in the system.
5.7 Compliance issues
Audit examined compliance in individual sampled cases to the provisions of

the CGST Act, associated rules, procedures, etc. related to refund of GST by the
Central tax authorities. Audit noticed 522 cases where excess/inadmissible
refund of ₹ 185.28 crore was sanctioned due to incorrect computation of
Adjusted Total Turnover, consideration of ineligible accumualted ITC, claims
which were time barred etc. Audit also noticed delays at various stages of
processing of refunds that led to delay in sanction of refunds. The interest
for delayed refunds was also not paid in the majority of cases. The details
regarding the nature of audit observations and the extent of deviations are
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included in Table 5.4 (pre-automation period) and Table 5.5 (post- automation
period):
Table 5.4: Compliance deviations noticed during pre-automation period
Pre-automation
Cases audited Audit observation Deviation
in the sample rate (as a
Sl. audited109 percentage
Nature of observation
No. of number of
cases)
No. Amt. No. Amt. Percentage
(in ₹ crore) (in ₹ crore)
1 Delay in issue/non-issue of 5,451 6,320 374 468 6.86
acknowledgement
2 Refund orders not sanctioned or paid in 5,451 5,771 412 401 7.56
time
3 Provisional refund on account of zero-rated 3,237 4,500 281 360 8.68
supply not sanctioned in time/not issued at
all
4 Irregular sanction of refund under Inverted 1,345 1,060 46 21 3.42
Duty Structure
5 Irregular grant of provisional refund to 2,214 1,271 30 25 1.36
ineligible taxpayer
6 Sanction of refund without submission of 4,486 5,456 21 53 0.47
copy of GSTR-2A along with refund
application by taxpayer
7 Excess grant of refund due to non-reversal 4,486 5,406 54 3 1.21

of ITC on exempted supplies
8 Irregular grant of refund on inadmissible 4,486 5,406 29 2 0.65
input tax credit
9 Excess refund due to adoption of incorrect 4,486 5,406 26 12 0.58
adjusted turnover
109 Row No. 4 to 9 in the table 5.4 depict the compliance deviations as pointed out in para 5.7
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Report
Report No.
No. 55 of
of 2022
2022(Indirect
(IndirectTaxes
Taxes––Goods
Goodsand
andServices
Services Tax)
Tax)
Table
Table5.5:
5.5:Compliance
Compliance deviations noticed
noticedduring
duringpost-automation
post-automationperiod
period
Post-automation
Post-automation
Cases processed by
Cases by Audit
Auditobservation
observationinin Deviation
Deviation
Centre the
thesample
sample rate
rate(as(as
aa
Sl.Sl. audited percentage
110
audited110 percentage
Natureofofobservation
Nature observation
No.No. ofofnumber
number ofof
cases)
cases)
No.
No. Amount
Amount No.
No. Amount
Amount Per
Percent
cent
(in ₹₹ crore)
(in crore) (in
(in₹₹crore)
crore)
1 Delay in issue/non- issue of 90,888 32,008 11,683 4,472 12.85

1 Delay in issue/non- issue of 90,888 32,008 11,683 4,472 12.85
acknowledgement
acknowledgement
2 Refund orders not sanctioned or paid in 86,506 24,685 12,289 4,436 14.21
2 Refund orders not sanctioned or paid in 86,506 24,685 12,289 4,436 14.21
time
time
3 Provisional refund on account of zero- 30,534 17,221 20,050 9,360 65.66
3 Provisional refund on account of zero- 30,534 17,221 20,050 9,360 65.66
rated supply not sanctioned in time/not
rated supply not sanctioned in time/not
issued at all
issued at all
4 Irregular sanction of refund under Inverted 2,180 2,051 31 3 1.42
4 Irregular sanction of refund under Inverted
Duty Structure 2,180 2,051 31 3 1.42
Duty Structure
5 Sanction of refund without checking status 86,506 24,685 13,589 2,229 15.71
5 Sanction
of filingof
ofrefund
returnswithout checking status 86,506 24,685 13,589 2,229 15.71
of filing of returns
6 Sanction of refund without submission of 2,938 155 74 40 2.52
6 Sanction
copy of of refund
GSTR-2Awithout
along submission of
with refund 2,938 155 74 40 2.52
copy of GSTR-2A along with refund
7 Sanction of refund when ITC shown was 31,173 27,405 2,656 6,122 8.52
7 more than
Sanction GSTR-2Awhen ITC shown was
of refund 31,173 27,405 2,656 6,122 8.52
more than GSTR-2A
8 Delay in Issue of deficiency memo 53,926 17,003 9,001 4,682 16.69
8 Delay in Issue of deficiency memo 53,926 17,003 9,001 4,682 16.69
9 Delay in disbursement of refunds beyond 78,895 23,742 2535 1,972 3.21
9 Delaydays
15 of sanction. of refunds beyond
in disbursement 78,895 23,742 2535 1,972 3.21
15 days of sanction.
10 Irregular grant of refund on inadmissible 5,064 172 19 3 0.38
input tax credit
10 Irregular grant of refund on inadmissible 5,064 172 19 3 0.38
input tax credit
11 Excess refund due to adoption of incorrect 5,064 172 58 13 1.15
adjusted turnover
11 Excess refund due to adoption of incorrect 5,064 172 58 13 1.15
adjusted turnover
110 Row No. 4 to 7 and 10 to 11 in the table 5.5 depict the compliance deviations as pointed out in para
5.7
110 Row No. 4 to 7 and 10 to 11 in the table 5.5 depict the compliance deviations as pointed out in para
5.7
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5.7.1 Delays at various stages of refund processing
5.7.1.1 Delay in issue of acknowledgement
Pre-automation
Sub-rule (1) and (2) of Rule 90 of the CGST Rules provide that the
acknowledgment shall be issued within fifteen days of filing of refund claim
with the proper officer, if the application is found complete in all respects. In
case of pre-automation cases, the stipulated period of 15 days will be counted
from the date of manual submission of refund application along with all
specified documents.
Audit examined 5,451 refund cases pertaining to the pre-automaton period
and observed delays and omissions in 485 cases (nine per cent) under 53
Commissionerates as detailed below:
• In respect of 83 cases under 14 Commissionerates, wherein the refund
claim was ₹ 68.34 crore, no acknowledgement had been issued, while
there were delays in issue of acknowledgement in 291 cases ranging up to
369 days. In 49 cases, there was delay of more than 60 days. The delays
and non-issue of acknowledgement constituted 6.99 per cent of the sample
checked.
• In respect of 16 cases, Audit could not ascertain whether the
acknowledgement was issued or not as records were not made available.
In 32 Commissionerates, Audit could not ascertain the date of manual
submission of application in 95 cases involving refund claim of ₹ 110.81
crore as proper records were not maintained for monitoring the receipt of
applications.
In response to the audit observation (December 2020 to September 2021), the
Department accepted the observation in 113 cases under 21
Commissionerates.
In 41 cases under 10 Commissionerates111, the Department did not accept the
observation and contended that there was delay in issue of acknowledgement
due to late submission or short submission of documents by the tax payers.
The reply is not acceptable as the Department had to either issue
acknowledgement or if the documents were not complete, deficiency memo
was to be issued within 15 days. In the remaining 248 cases under 28
Commissionerates, the replies were awaited (February 2022).
Two such cases are illustrated below:
111 Delhi South and Raipur Commissionerate.
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(a) A taxpayer under the Gurugram Commissionerate filed a refund

application for zero-rated supply on 10 June 2019 followed by manual
submission of application along with documents on 14 August 2019. A
Deficiency memo was issued on 4 September 2019 and rectified application
was submitted by the taxpayer on 5 November 2019. The Department issued
acknowledgement on 26 May 2020 after a delay of more than 187 days from
the receipt of completed application, and issued the sanction order for ₹ 10.11
crore on the same day.
When pointed out (August 2021/December 2021), the Ministry stated
(February 2022) that due to Covid pandemic vide Notification dated 3 April
2020, issued under Section 168A of the CGST Act, the time limit for completion
or compliance of any action, by any authority or by any person, has been
specified in, or prescribed or notified under the said Act, which falls during the
period from the 20th day of March, 2020 to the 29th day of June, 2020, and
where completion or compliance of such action has not been made within such
time, then, the time limit for completion or compliance of such action was
extended upto the 30th day of June 2020. Thus, there was no delay in
sanctioning of above refund claim; however, the audit objection is agreed.
Ministry’s reply is not acceptable in view of the fact that the taxpayer had
originally submitted the refund application in August 2019. In reply to
deficiency memo of November 2019, the taxpayer had submitted the revised
refund application on 6 February 2020. Thus, the department was required to
issue acknowledgment within 15 days from 6 February 2020 i.e. 21 February
2020. The lockdown, owing to Covid-19, was imposed from 23 March 2020. i.e.
after more than a month of receipt of the revised refund application.
(b) A taxpayer under Haldia Commissionerate filed an application claiming
refund of ₹ 65.56 lakh and submitted the documents physically on 28 January
2019. Acknowledgement was issued after 309 days on 3 December 2019
instead of within 15 days. The provisional refund of ₹ 59 lakh was granted on
the same day and final refund of ₹ 6.55 lakh was granted on 19 December
2019.
When Audit pointed this out (January 2021/December 2021), the Ministry
admitted the audit observation and stated (February 2022) that in future such
issues would be dealt more cautiously. Further, efforts were being made to
ensure maximum facilitation of taxpayers.
Post-automation
Analysis of the post-automation GSTN data during the period September 2019
to July 2020 disclosed that in 11,683 out of 90,888 cases, constituting about
13 per cent of cases, acknowledgments were issued with delays ranging up to
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147 days. Consequently, the refunds in 3,724 cases were sanctioned beyond
the stipulated period of 45 days112 as detailed below:
Table 5.6: Delay in sanction of refund claim due to delay in acknowledgment
(post- automation)
Delay in sanction of refund Number of Cases Amount Sanctioned
(in ₹ crore)
1 day to 15 days 2,634 1,176
16 days to 45 days 933 420
46 days to 75 days 110 32
Beyond 75 days to 230 days 47 21
Total 3,724 1,649
Source: Compiled based on the data furnished by GSTN.
During detailed audit of 554 post-automation cases in 72 Commissionerates,

Audit noticed delays in issue of acknowledgment up to 170 days with claim
amount of ₹ 567 crore.
On this being pointed out in audit (December 2020 to April 2021), the
Department accepted the observation in 197 cases and replied that the
technical glitches and errors had resulted in delays. The Department
contended in two cases, pertaining to two Commissionerates, that remote
access was not provided during the Covid 19 pandemic. In 10 cases under one
Commissionerate, the Department accepted the delay but did not elaborate
on the reasons for the delay. Replies regarding 325 cases, under 52
Commissionerates, were awaited.
Recommendation 7: In case of issue of acknowledgement after 15 days, the

proper officer should specify the reasons for such delay and the same should
be monitored online by the Department.
Ministry, in response to audit recommendation, stated (February 2022) that

issuance of acknowledgement was just a step in processing of refund and not
the final step determining the payment of refund. However, instructions were
being issued to the field formations of CBIC for strict adherence of the
timelines for issuance of acknowledgement and deficiency memo.
112 Circular dated 18 November 2019- The tax authorities were advised to issue the final sanction and
payment order within 45 days of the date of generation of ARN, so that the disbursement is
completed within 60 days.
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5.7.1.2 Delay in sanction of refunds

Section 54 (5) and 54 (7) of CGST Act, 2017 provide that the proper officer shall
issue sanction order within sixty days from the date of receipt of application
complete in all respect. Wherever a deficiency memo (GST-RFD-03) is issued,
the period of 60 days is counted from the date of receipt of reply to the said
deficiency memo.
Section 56 of the CGST Act, 2017 provided that if any tax ordered to be
refunded under sub-section (5) of Section 54 to any applicant is not refunded
within sixty days from the date of receipt of application under subsection (1)
of that section, interest at such rate not exceeding six per cent, shall be payable
in respect of such refund from the date immediately after the expiry of sixty
days from the date of receipt of application under the said sub-section till the
date of refund of such tax.
The Board held that interest has to be calculated from the date immediately
after the expiry of sixty days from the date of receipt of the application till the
date the amount is credited to the bank account of the applicant. The tax
authorities were advised to issue the final sanction and payment order within
45 days of the date of generation of ARN so that the disbursement is
completed within 60 days113.
Government extended the due date for issue of notice, sanction or approval
etc. falling between 20 March 2020 and 30 August 2020 to 31 August 2020114
owing to Covid-19 pandemic. Time limit was also extended for issuance of
order where the SCN was issued between 20 March 2020 and 29 June 2020, to
fifteen days after the receipt of reply to the SCN or 30 June 2020 whichever
was later115.
The notifications were primarily meant to take care of extraordinary
circumstances of pandemic. The officials were granted remote access to the
GSTN from 5 April 2020 so that officials could work from home. Hence, for any
delay in sanction or issue of an order, there needed to be cogent recorded
reasons.
Pre-automation
Audit examined 5,451 cases and noticed delays in issue of sanction
orders/payment advice beyond 60 days from the date of receipt of completed
applications in 412 cases constituting about 8 per cent of the total cases
113 Circular dated 18 November 2019

114 On 27 June 2020
115 In 9 June 2020
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examined. Interest of ₹ 2.25 crore was not paid in these cases. The details are
given in Table 5.7 below:
Table 5.7: Delay in sanction of refund (pre-automation)
Delay in sanction of Number of Amount Sanctioned Interest payable
refund Cases (₹ in crore) (₹ in crore)
Up to 60 days 226 218 0.69
61 to 120 days 87 43 0.51
Beyond 120 days 99 140 1.05
Total 412 401 2.25
On this being pointed out in audit (December 2020 to September 2021), the
Commissionerates, and stated that delays occurred due to heavy work load
and shortage of staff. In three cases pertaining to Madurai Commissionerate,
Department intimated payment of interest against the delayed refund.
In 52 cases under 11 Commissionerates, the Department did not accept the
observation and contended that the delay in sanction of refund was due to late
submission or short submission of documents by taxpayers. In six cases, the
Department stated that the delay was due to delayed/intermittent replies by
the taxpayers to the SCNs issued. The Department further stated that no
interest has been demanded by the taxpayers. In the remaining 233 cases,
under 25 Commissionerates, replies were awaited.
The Department’s reply regarding non-payment of interest is not acceptable
as the interest amount is to be paid suo moto by the Department. There is no
requirement in the Rules that the taxpayers have to formally demand payment
of interest.
An illustrative case is given below:
A taxpayer under Ahmedabad North Commissionerate, claimed refund of ₹
19.40 crore on 8 October 2018. The acknowledgement was issued on 26
October 2018 and provisional refund of ₹ 17.46 crore was sanctioned on 12
November 2018. An SCN was issued after eleven months on 18 October 2019.
After receipt of reply to the SCN on 26 October 2019, the final refund of ₹ 1.84
crore was paid on 22 November 2019, after excluding inadmissible amount of
₹ 9.36 lakh, resulting in inordinate delay in sanction/payment of final refund
amount of about one year. Further, the Department did not pay interest to the
taxpayer despite delayed payment of refund.
When Audit pointed this out (December 2021), the Ministry informed
(February 2022) that the delay was due to implementation of GST, heavy work
load, shortage of staff and vigorous /in depth verification of claims.
Ministry’s reply is not acceptable as the refund application pertained to
October 2018 whereas GST was implemented in July 2017, i.e. more than 15
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months before the receipt of the refund application. Further, the reply of the
Ministry is silent on the aspect of non-payment of interest on delayed payment
of refund.
Post- automation
During the post-automation period, Audit observed that in respect of 86,506

cases, sanction orders for refunds amounting to ₹ 24,684.91 crore were issued.
In 15,631 cases, constituting about 18 per cent involving sanctioned amount of
₹ 6,249.72 crore, the sanction orders were issued beyond the stipulated period
of 45 days. In respect of 12,289 cases constituting about 14 per cent, the
refund amount of ₹ 4,434.63 crore was paid beyond 60 days of the date of
application. Further, the Department was required to pay an interest of ₹ 7.67
crore for delayed payments, but interest of only ₹ 12.38 lakh was paid.
Table 5.8: Delay in sanction of refund (post-automation)
Number Amount Amount paid Amount of Interest

of Cases Sanctioned through PFMS interest paid (in ₹
Delay in sanction of refund
(in ₹ crore) (in ₹ crore) payable (in crore)
₹ crore)
1 to 60 days 10,544 3,850 3,849 3.82 0.01
60 days to 120 days 1,145 432 432 1.79 0.03
Beyond 120 days 600 154 154 2.06 0.08
Total 12,289 4,436 4,435 7.67 0.12

During detailed audit of 6,482 cases in 107 Commissionerates, Audit noticed
delayed payment of refund in 186 cases amounting to ₹ 192.06 crore in 56
Commissionerates in which interest of ₹ 38.46 lakh was payable. However,
interest of only ₹ 8,504 was paid in 11 cases.
On this being pointed out (February 2021 to August 2021), the Department
attributed (January to May 2021) delays mainly to technical glitches, claim not
shown in the task list, heavy workload, shortage of staff, delay in crediting the
amount to the claimant’s bank account despite issue of sanction order in time
etc. In two cases, the Department replied that the delay occurred due to late
submission of replies to show cause notices by the claimants and none of the
taxpayers had demanded the interest. In the remaining 122 cases under 35
commissionerates, replies were awaited.
The reply of the Department in one case was not acceptable as the show cause
notice itself was issued after 60 days of the ARN date, and in another case,
sanction was delayed by 57 days. The law provides that the taxpayer has to
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furnish the reply within 15 days of receipt of the show cause notice. The
Department, therefore, could have sanctioned the refund claim after excluding
the amount covered under SCN after 15 days of issue of SCN. In the remaining
122 cases under 35 commissionerates, replies were awaited (February 2022).
Two illustrative cases are given below:
(a) A taxpayer under Hyderabad Commissionerate, applied on
27 September 2019 for refund (supplies to SEZ without payment of tax) of
₹ 4.94 crore for the period of September 2017 to March 2018. The
acknowledgment was issued on 10 October 2019, while the final payment of
₹ 4.94 crore was sanctioned on 2 March 2020, that is, after a delay of 97 days.
Despite delay, Interest of ₹ 0.79 lakh due to the taxpayer was not paid.
In another case of the same taxpayer, the refund of ₹ 18.30 crore for the period
of April 2018 to March 2019 was submitted on 30 September 2019. The
acknowledgment was issued on 10 October 2019. The final payment of ₹ 18.30
crore was sanctioned on 2 March 2020, that is, after a delay of 94 days
(2 March 2020). The Department was liable to pay interest of ₹ 2.83 lakh, which
was not paid.
On this being pointed out in audit (February 2021/December 2021), the
Department stated (July 2021) that the sanction order (RFD 06) was not issued
as the taxpayer’s bank accounts were shown as invalid; hence, there was no
lapse on the part of the Department. The office as well as the taxpayer had
taken up the matter through numerous emails with Saksham Seva and CBIC
Mitra. The reply is not acceptable as the sanction order gets generated even
if the bank accounts were invalid and only the Payment Advice does not get
generated. In this case, the Sanction order itself was not issued within the
stipulated time.
When Audit pointed this out (December 2021), Ministry stated (February
2022) that the reply would follow.
(b) A taxpayer under the Varanasi Commissionerate applied for refund of
Cess worth ₹ 9.66 crore for the period of September 2019 on 4 January 2020.
Acknowledgment was issued on 15 January 2020. However, provisional
sanction order for ₹ 8.69 crore was issued on 17 February 2020 and the
Payment advice was issued on 1 March 2020 after a delay of 38 days.
However, the final refund was pending disbursement even after a lapse of 547
days (2 September 2021).
When Audit pointed this out (May 2021/December 2021), the Ministry
admitted that there was a delay of 38 days in sanction of provisional refund.
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Ministry’s reply, however, is silent on the reasons for the pending

disbursement of final refund even after a lapse of 547 days.
Recommendation 8: The provisions regarding payment of interest on delayed

refunds need to be amended to exclude the period of delays that is
attributable to the taxpayers such as delay in reply to SCN or incorrect bank
details for payment.
Ministry, in response stated (February 2022) that the audit recommendation

had been noted for placing before the Law Committee of GST Council.
Recommendation 9: The GST system may be modified to automatically

calculate the interest amount payable to the claimant in case of delay in
processing of refunds beyond the prescribed time limit. Reasons for non-
payment of interest may be mandatorily captured in the system and
monitored.
Ministry, in response to audit recommendation, stated (February 2022) that

the matter would be taken up with GSTN and DG (Systems).
5.7.1.3 Provisional refund on account of zero-rated supply not sanctioned

in time
Rule 91 (1) of the CGST Rules, 2017 provides that provisional refund in
accordance with the provisions of sub-section (6) of section 54 shall be granted
subject to the condition that the person claiming refund has, during any period
of five years immediately preceding the tax period to which the claim for
refund relates, not been prosecuted for any offence under the Act or under an
existing law where the amount of tax evaded exceeds two hundred and
fifty lakh rupees. Sub rule (2) further provides that the proper officer, after
scrutiny of the claim and the evidence submitted in support thereof and on
being prima facie satisfied that the amount claimed as refund under sub-rule
(1) is due to the applicant in accordance with the provisions of sub-section (6)
of section 54, shall make an order in FORM GST RFD 04, sanctioning the
amount of refund due to the said applicant on a provisional basis within a
period not exceeding seven days from the date of the acknowledgement under
sub-rule (1) or sub-rule (2) of rule 90.
Pre-automation
Audit examined 3,237 cases of zero-rated supplies of goods and services for
the pre-automation period, in which provisional refund was payable. In 281
cases, provisional refund was not paid within seven days of acknowledgement.
In 234 out of 284 cases, the entire claim was refunded at once without
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payment of provisional refund. In 134 such cases, the sanction amount of ₹

160.68 crore was paid beyond 60 days of the date of manual submission of
documents.
In 47 cases, where provisional refund was paid separately, there were delays
in sanction of provisional refund up to 187 days. In five cases, there was delay
of more than 60 days in sanction of provisional refund.
Department accepted the observation in 24 cases under eight
Commissionerates. In 32 other cases under eight Commissionerates, the
Department did not accept the observation and contended that there was
delay in issuing provisional refund either due to detailed verification or issue
of SCN to the taxpayer.
In the remaining 222 cases (27 Commissionerates), replies were awaited
(February 2022).
Post-automation
In post- automation cases, provisional refund of ₹ 17,220 crore was required
to be granted in respect of 30,534 cases under the category of zero-rated
export of goods and services. However, provisional refund of ₹ 7,652.06 crore
was granted in only 10,080 cases constituting 33.33 per cent of the cases,
despite issue of acknowledgement in the balance 20,454 cases. Consequently,
there was no justification for the Department to skip provisional refund and
grant refund after a delay of more than 22 days in 4,308 cases involving refund
of ₹ 2251.72 crore.
In addition, Audit noticed delays in issue of provisional refund in 2,914
applications as detailed in Table 5.9:
Table 5.9: Delay in sanction of provisional refund (post-automation)
Description Maximu Number Amount Provision
m delay of Cases claimed al refund
in days (in ₹ (in ₹
crore) crore)
Delay in both issue of Acknowledgement and Provisional 119 510 340 281
refund
Delay in issue of Provisional refund where 119 1,619 1,349 1,071

acknowledgement was issued within prescribed time.
Acknowledgment issued beyond 15 days though the 134 785 643 448
provisional refund was issued within 7 days of
acknowledgement.
Total 2,914 2,332 1,800

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During detailed audit in 46 Commissioneates, Audit noticed that in 429 cases,

provisional refund was not paid within seven days of the acknowledgement. In
337 out of 429 cases, the entire claim was refunded at once beyond the seven
days of acknowledgment by skipping payment of provisional refund.
When these delays were pointed out (between December 2020 and
September 2021), the Department accepted the audit observation in 64 cases
under 16 Commissionerates and cited human omission and shortage of
manpower as the reasons. In one case, the Department attributed the delay to
system failure and in three other cases, it stated that the manpower was not
conversant with the online process of refund. In four cases the delay was
attributable to non availability of remote access.
In cases where provisional refunds were not sanctioned, the Department in
respect of one case contended that it was not mandatory to sanction
provisional refund. In nine cases under one Commissionerate, the
Department116 stated that the claim was sanctioned within the prescribed
time-limit of 60 days. In two cases under one Commissionerate, the
Department accepted the audit observation and in one case, the Department
attributed the delay to late submission of BRC. In the remaining 317 cases,
replies were awaited.
In cases where the Department did not agreee with the audit observation, it
would be worthwhile to underline that the final refund (after skipping payemt
of provisional refund) was not sanctioned within seven days from the date of
acknowledgment. The Department was required to sanction the provisional
refund in view of the statutory provisions of Section 54 (6) of the Act read with
Rule 91(2) of the Central Goods and Service Tax, 2017 where the word “shall“
has been used which makes it mandatory to sanction the provisional refund
once the proper officer is prima facie satisfied that the amount claimed as
refund under sub-rule (1) is due to the applicant in accordance with the
provisons of sub-section 6 of Section 54.
5.7.1.4 Delay in Issue of deficiency memo
An acknowledgment for receipt of refund application should be issued within

15 days if the documents are complete117 and in case of any shortcoming in
refund application, a deficiency memo in RFD-03 has to be issued.
In pre-automation cases, the taxpayer had to resubmit the application after
rectifying the deficiencies intimated by the Department. The date of
resubmission was considered as the date of receipt of completed application.
116 Vadodara I Commissionerate

117 Rule 90 of CGST Rules
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The Application Reference Number (ARN) generated at the time of online

submission of application remained unchanged.
In the post-automation period, once a deficiency memo is issued, the refund
application would not be further processed, and a fresh application had to be
filed after rectification of deficiencies. This application would have a new ARN.
Delhi High Court118 had held that allowing the proper officer to issue a
deficiency memo beyond the timelines would amount to enabling processing
of the refund application beyond the statutory timelines. This could then also
be construed as rejection of the petitioner’s initial application for refund as the
petitioner would thereafter have to file a fresh refund application after
rectifying the alleged deficiencies. This would not only delay the taxpayer’s
right to seek refund, but also impair assessee’s right to claim interest from the
relevant date of filing of the original application for refund as provided under
the Rules. The proper officer has lost the right to point out any deficiency, in
the petitioner’s refund application, at this belated stage.
Pre-automation
Audit examination revealed that in 26 cases under 13 Commissionerates,

deficiency memos were issued with delays of two to 34 days. Besides non-
observance of the aforesaid provisions, this delayed the taxpayers‘ right to
seek refund.
When Audit pointed this out (December 2020 to March 2021), the Department
accepted the delay in 18 cases (seven Commissionerates) and attributed
(December, 2020 to March, 2021) the delays to shortage of staff. In two cases,
the Department did not accept the observation and cited technical glitches and
delayed submission of documents by the taxpayer as the reasons for delay. In
six cases, replies were awaited (February 2022). Reply of the Ministry to the
above observations was awaited (February 2022).
Post-automation
In the post-automation period, the Department had issued 53,926 deficiency

memos. In 9,001 cases, constituting 17 per cent, the deficiency memos were
issued beyond the stipulated period of 15 days with delays ranging up to 211
days. Analysis of delays are as follows:
118 JIAN INTERNATIONAL versus COMMISSIONER OF DELHI GOODS AND SERVICES TAX [2020] 117
taxmann.com 968
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Table 5.10: Delay in issue of Deficiency memo (post-automation)
Number of Cases Amount Claimed

Delay in days (in crore)
1 to 15 days 7,328 4,113
16 days to 30 days 965 253
30 days to 45 days 505 244
Beyond 45 days 203 72
Total 9,001 4,682

Source: Data compiled on the basis of information provided by GSTN
Recommendations 10: The Department needs to put in place an effective

monitoring mechanism to ensure timely issue of deficiency memos in case of
deficiency in the refund claims.

instructions were being issued to the field formations of CBIC for strict
adherence to the timelines for issuance of acknowledgement and deficiency
memo.
Ministry’s reply, however, is silent on the monitoring mechanism to ensure
timely adherence to the extant instructions by the field formations.
5.7.1.5 Delay in disbursement of refunds
On receipt of the payment advice in Form RFD-05, the GST System generates a
consolidated statement comprising all RFD-05 files at the end of the day. This
statement is transmitted to PFMS electronically which validates the bank
account details with the taxpayers’ Master file. The designated Drawing and
Disbursing Officer (DDO) thereafter prepares the electronic bill in the PFMS
system, affixing his digital signature and forwards it to e-PAO (Refund) of Pr.
CCA (CBIC). The e-PAO issues Payment authorization to the accredited bank119.
Audit analysed PFMS data pertaining to the period 26 September 2019 to 31
July 2020, and noticed that payments were made after lapse of 15 days from
the date of issue of sanction order in 2,535 provisional/final refund cases out
of 78,795 (3.21 per cent). Age-wise analysis of delays is detailed below:
119 Single authority refund disbursement process: concept document issued by GSTN on 24 September
2019.
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ReportReport
No. 5 of
No.2022
5 of (Indirect
2022 (Indirect
Taxes Taxes
– Goods
– Goods
and Services
and Services
Tax) Tax)
Table Table
5.11: Delay
5.11: Delay
in payment
in payment
of refunds
of refunds
through
through
PFMS PFMS
Provisional
Provisional
refundrefund Final payment
Final payment
Delay Delay
in daysin days Number
Number
of of Amount Amount NumberNumber
of ofAmount
Amount
ClaimedClaimed
Cases Cases ClaimedClaimed Cases Cases (in ₹ crore)
(in ₹ crore)
(in ₹crore)
(in ₹crore)
15 days
15to
days
45 days
to 45 days 599 599 454 454 1,735 1,735 1,376 1,376
45 days
45to
days
60 days
to 60 days 54 54 43 43 57 57 28 28
Beyond
Beyond
60 days
60 days 74 74 69 69 16 16 3 3
Total Total 727 727 565 565 1,808 1,808 1,407 1,407
Source:
Source:
Compiled
Compiled
basedbased
on data
onfurnished
data furnished
by GSTN
by GSTN
The Department
The Departmentattributed
attributed
the delays
the delays
to delay
to delay
in issue
in issue
of payment
of payment
advice,
advice,
bankbank
validation
validation
failure
failure
etc. etc.
The The
delaysdelays
are indicative
are indicative
of the
of fact
the fact
that that
after after
sanction
sanction
of claim,
of claim,
the the
Department
Department
did not
did ensure
not ensure
timely
timely
creditcredit
of the
of amount
the amount
to the
to taxpayer’s
the taxpayer’s
account
account
in several
in several
cases.cases.
5.7.1.6
5.7.1.6
Delayed
Delayed
disbursal
disbursal
of refund
of refund
sanctioned
sanctioned
by State
by State
Tax Authorities
Tax Authorities
During the pre-automation

During the pre-automation period, CBIC CBIC
period, vide its circular
vide 120 specified
its circular 120 specified
that the
that the
refund orderorder
refund issued eithereither
issued by the
byCentral tax authority
the Central or theorState
tax authority tax/UT
the State tax tax
tax/UT
authority
authority
shall shall
be communicated
be communicated to the toconcerned
the concerned
counterpart
counterpart
tax authority
tax authority
within
within
sevenseven
working
working
days days
for the
for purpose
the purpose
of payment
of paymentof the of relevant
the relevant
sanctioned refund
sanctioned amount
refund of taxof or
amount taxcess, as the
or cess, as case may may
the case be. Itbe.
must be be
It must
ensured
ensured
that the
thattimelines
the timelines
specified
specified
underunder
Section
Section
54 (7)54of(7)
theofCGST
the CGST
Act and
Act and
Rule Rule
91(2)91(2)
of theofCGST
the CGST
RulesRules
for the
forsanction
the sanction
of refund
of refund
are adhered
are adhered
to. to.
AuditAudit
verified
verified
the records
the records
maintained
maintained
in sixinCommissionerates
six Commissionerates121 and121 noticed
and noticed
that out
thatofout
5,451 casescases
of 5,451 test checked, sanction
test checked, orders
sanction (RFD-06)
orders in respect
(RFD-06) of 95of 95
in respect
cases,cases,
involving refund
involving amount
refund of ₹ 23.89
amount of ₹ 23.89
crore,crore,
werewere
communicated
communicated by the
by the
StateState
tax authorities to Central
tax authorities tax authorities
to Central after after
tax authorities delays ranging
delays between
ranging between
two to
two 134
todays.
134 days.
In 47Incases, taxpayers
47 cases, received
taxpayers the payment
received of ₹ of
the payment ₹ 8.75
8.75 crorecrore
after after
a delay
a delay
ranging fromfrom
ranging 9 days to 749
9 days to days fromfrom
749 days the date of sanction
the date by the
of sanction by State
the State
Authorities. AuditAudit
Authorities. couldcould
not identify the authority
not identify (Central
the authority or State)
(Central that was
or State) that was
responsible for the
responsible for delay as the
the delay as requisite details
the requisite of receipt
details fromfrom
of receipt StateState
tax tax
authorities werewere
authorities not available. AuditAudit
not available. observed that even
observed though
that even interest
though was was
interest
120 CBIC
120circular
CBIC circular
dated 21
dated
December
21 December
2017. 2017.
121 Gandhinagar,
121 Gandhinagar,
Agra, Ranchi,
Agra, Ranchi,
Jamshedpur,
Jamshedpur,
Kozhikode,
Kozhikode,
Thiruvanathapuram
Thiruvanathapuram
94
94 94
payable at the time of the issue of payment advice (Form RFD 05) by the
Central tax authority considering the total delay from the date of submission
of application as per the provisions of 94 of the CGST Rules, no interest was
worked out and included in the payment advice.
On this being pointed out in audit (December 2020), the Department

attributed (January to March 2021) the delay to the State tax authority in
communicating refund orders. As regards non-payment of interest in RFD-06,
the Department stated that the refund claim papers were not available with
the Central tax authorities, and the claimants had not claimed interest. In one
case, the Department stated that there was no mention of disbursing interest
amount in the refund sanction issued by the State GST Offices.
The contention of the Department is not acceptable, as payment of interest

was a statutory requirement and the claimant was not required to claim it
separately. Further, interest is payable at the time of Payment Advice (RFD 05)
and not at the time of sanction. Once there is a delay in payment of refund
beyond 60 days, the disbursing officer ought to include the interest in the
Payment advice. In none of the cases, the date of receipt of refund orders
from the State nodal officers were recorded by the Central authorities.
Further, in respect of 14 cases, where the refund orders were forwarded by
the Central nodal officers to the Commissionerates on the same day, payments
were made to the claimants after a lapse of 32 days to 687 days.
In one case, where the delay in disbursement from the date of receipt of
sanction order was 687 days, the Department stated that when RFD-06 from
the state nodal officer was received, the taxpayer was not reflected in the All-
in-ones (AIO) system of the jurisdiction of division office. Subsequently, when
the taxpayer approached (January 2020) for the refund claim, RFD-05 was
issued (January 2020) as the taxpayer was then reflecting under their
jurisdiction.
The reply is not acceptable as the Department did not follow up the matter by
intimating (May 2018) the discrepancy to the nodal officer. The refund was
processed (January 2020) only when the claimant approached the Department
after 585 days, indicating lack of monitoring/ follow up by the Department.
One such case is given below as illustration:
A taxpayer was sanctioned refund of ₹ 99.08 lakh on 25 October 2019 by the

State tax authority. Records were not maintained by the Gandhinagar
Commissionerate regarding the date of receipt of the sanction order from the
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State authorities and by the Central nodal officer, and the date of forwarding
the same to the Divisional officer for disbursement. The taxpayer finally
received the payment of IGST of ₹ 99.08 lakh on 8 January 2020 i.e., after 88
days from the issue of sanction order by the State authorities. Audit observed
that the interest payable for the delayed refund was not included in the
payment advice for payment to the taxpayer.
stated (February 2022) that the delay in refund was due to delay in receipt of
sanction orders from the SGST authority. Moreover, there were no specific
instructions for payment of interest on delay by the SGST authority.
Accordingly, this office had not calculated and paid interest to the taxpayer.
Ministry also stated that the concerned taxpayer had not claimed any interest
for the instant refund claim.
Ministry’s reply is not acceptable in view of the fact that section 56 of the CGST
Act, 2017 makes it mandatory for the interest to be paid in cases of delayed
refund orders without making it contingent upon claim by the taxpayer.
5.7.2 Excess refund due to adoption of incorrect Adjusted Total Turnover
As per Rule 89(4) of the CGST Rules, in case of zero-rated supply of goods or
services or both without payment of tax, refund of credit shall be granted as
per the following formula:
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-
rated supply of services) x Net ITC ÷ Adjusted Total Turnover
Similarly, Rule 89(5) provides that in case of the inverted duty structure, refund
of input tax credit shall be granted as per the following formula:
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and
services) x Net ITC ÷Adjusted Total Turnover} – tax payable on such inverted
rated supply of goods and services
“Adjusted Total Turnover” (ATT) means the turnover in a State or a Union
territory, as defined under sub-section (112) of Section 2, excluding the value
of exempt supplies other than zero-rated supplies, during the relevant period.
Audit examination revealed that in respect of 84 refund cases under 35
Commissionerates, the incorrect amount of the Adjusted Total Turnover was
considered by the Department while sanctioning the refund. This resulted in
excess sanction of refund of ₹ 24.90 crore.
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Department accepted the audit observation in 22 cases with irregular refund
of ₹ 2.49 crore (14 Commissionerates) and intimated recovery of ₹ 1.56 crore
in 12 cases (10 Commissionerates). In the remaining 47 cases (19
Commissionerates), replies were awaited.
A few illustrative cases are discussed below:
(a) A taxpayer under Bengaluru South Central Tax Commissionerate
claimed refund of ₹ 4.59 crore for the period April 2019 to June 2019 under
‘Inverted Duty Structure’ category. The Adjusted Total Turnover declared by
the taxpayer in the claim was ₹ 11.90 crore. However, GSTR-3B for the
relevant period indicated Adjusted Total Turnover of ₹ 14.76 crore. The
incorrect adoption of Adjusted Total Turnover resulted in excess refund of
₹ 1.15 crore.
When Audit pointed this out (July 2021/December 2021), the Ministry
contested the audit observation and stated (February 2022) that the values of
GSTR-3B do not reflect the actual outward taxable supplies for the period but
is reflected by GSTR-1 only.
Ministry’s reply is not acceptable as Rule 89 (4) (E) of the CGST Rules, 2017
does not specify any particular return, i.e. GSTR-1 or GSTR-3B for determining
the adjusted total turnover. However, GSTR-3B is a monthly summary return
which captures the details of outward and inward supplies, separately, in table
3.1. Further, the tax liability of the taxpayer is also determined on the basis of
the turnover declared in the GSTR-3B. Therefore, turnover declared in GSTR-
3B can be a basis for determining the adoption of Adjusted Total Turnover.
(b) A taxpayer under Tirupati Commissionerate was sanctioned refund of
₹ 4.67 crore for the period October 2019 to December 2020 under the category
of ‘Exports without payment of tax’. While processing the refund, tax
authorities incorrectly excluded the export of ₹ 31.53 crore from Adjusted
Total Turnover. This resulted in excess grant of refund of ₹ 1.23 crore.
When Audit pointed this out (April 2021/December 2021), the Ministry
accepted the audit observation and informed (February 2022) that the excess
paid refund amount of ₹ 1.23 crore along with interest ₹ 24.22 lakh had been
recovered from the taxpayer.
(c) A taxpayer, under the Chennai South Executive was sanctioned refund
of IGST of ₹ 5.51 crore (April 2020) for the tax period April 2018 to September
2018. The Adjusted Total Turnover of outward supply as per GSTR-1 was
₹ 1,806.02 crore, whereas while processing the refund, Adjusted Total
Turnover of ₹ 1,199.07 crore was adopted from GSTR 3B. Incorrect adoption
of Adjusted Total Turnover resulted in excess refund of ₹ 2.27 crore.
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When Audit pointed this out (December 2020/December 2021), the Ministry
accepted the audit observation and informed (February 2022) that the excess
paid refund amount of ₹ 1.43 crore along with interest of ₹ 37.16 lakh had been
paid by the taxpayer.
5.7.3 Irregular grant of refund on inadmissible input tax credit
5.7.3.1 Irregular refund on ineligible credits in case of Zero-rated supplies

without payment of tax
Section 17(5) of CGST Act stipulates that ITC is not available on supplies like
food and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery, services of general insurances, goods, or services
or both used for personal consumption.
In respect of 48 claims pertaining to ‘Export Without Payment of GST’ (EXWOP)
under 19 Commissionerates, Audit noticed that the taxpayers had claimed
refund of ITC on ineligible goods and services and credits which did not pertain
to the period of claim amounting to ₹ 4.76 crore. However, the Department
granted refund in these cases in contravention of the aforesaid provisions.
Department accepted the audit observation in 10 cases under eight
Commissionerates and intimated recovery of ₹ 2.72 lakh in three cases under
the three Commissionerates. In three cases, under three Commissionerates,
the Department did not accept the observation. In the remaining 35 cases
(13 Commissionerates), replies were awaited (February 2022).
A taxpayer under the Bengaluru North Central Tax Commissionerate, had
claimed refund of the unutilized ITC for the period from October 2018 to March
2019 (May 2020). The net ITC claimed by the taxpayer included supplies of
taxable value of ₹ 11.12 crore on which ITC credit of ₹ 1.85 crore was availed
relating to Sodexo Facilities Management Service which had issued food
coupons for the personal benefit of the employees. However, the Department
granted refund of ₹ 1.85 crore resulting in excess refund on account of
ineligible ITC, in contravention Section 17(5)(b) for the CGST Act, 2017.
When Audit pointed this out (July 2021/December 2021), the Ministry
accepted the audit observation and informed (February 2022) that an SCN of
₹ 90.39 crore for the period April 2018 to March 2020 had been issued.
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5.7.3.2 Irregular refund due to inclusion of inadmissible credit and ineligible

input services under Inverted Tax Category
The term “Net ITC” used in the formula that is used to determine the amount
eligible for refund in case of Inverted Duty Structure is defined under
Explanation to Rule 89(5) to mean “input tax credit availed on inputs during
the relevant period other than the input tax credit availed for which refund is
claimed under sub-rule 89(4A) or 89(4B) or both”.
Madras High Court in case of Tvl Transtonnelstroy Afcons Joint Venture vs
Union of India held (September 2020) that the refund was a statutory right,
and the extension of the benefit of refund only to the unutilised credit that
accumulated on account of the rate of tax on input goods being higher than
the rate of tax on output supplies by excluding unutilised input tax credit that
accumulated on account of input services was a valid classification and a valid
exercise of legislative power. This decision was upheld by the Supreme Court
in its judgement dated 13 September 2021. Further, Section 17 (5) of CGST Act
stipulates that ITC is not available on supplies like food and beverages, outdoor
catering, beauty treatment, health services, cosmetic and plastic surgery,
services of general insurance, goods, or services or both used for personal
consumption.
During detailed audit of 3,525 refund cases under Inverted Duty Structure
category, Audit noticed 77 cases under 31 Commissionerates where the
Commissionerates included ITC availed on input services and other ineligible
ITC while granting refund. The omission to exclude the ITC availed on input
services and other ineligible input tax credits resulted in irregular refund of
₹ 23.92 crore.
When Audit pointed this out (December 2020 to September 2021), the
Department accepted the audit observation in 41 cases (19
Commissionerates), out of which recovery of ₹ 46.67 crore was made in 32
cases (16 Commissionerate). In the remaining cases, replies were awaited
(February 2022).
Two illustrative cases are given below:
(a) A taxpayer under Jabalpur Commissionerate, got refund amounting to
₹ 20.70 crore, in case of four ARNs under the category of accumulated ITC due
to Inverted Duty Structure. In all these cases, refund was sanctioned without
disallowing inadmissible ITC on input services, capital goods and on the
invoices not pertaining to the relevant period from “Net ITC”. Further, in three
refund cases (except refund dated 8 February 2019), the Department
sanctioned the refund considering Adjusted Total Turnover (ATT) shown in the
refund application instead of ATT as per monthly returns (GSTR-01/GSTR-3B).
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Lapse in disallowing ineligible ITC coupled with adoption of lower value of ATT
resulted in excess refund of ₹ 18.81 crore.
When Audit pointed this out (March 2021/December 2021), the Ministry
intimated (February 2022) reversal of ₹ 45.72 crore (pertaining to all nine
months from July 2017 to March 2018). Ministry further informed that an SCN
for recovery of interest and penalty was being issued.
(b) A taxpayer under Bengaluru Northwest Central Tax Commissionerate,
claimed refund of accumulated ITC of ₹ 1.85 crore under Inverted Duty
Structure. The “Net ITC” included credit of capital goods and input services
amounting to ₹ 2.98 crore, which were not eligible. The omission to exclude
the same resulted in excess sanction of refund amounting to ₹ 1.29 crore.
When Audit pointed this out (August 2021/December 2021), the Ministry
stated (February 2022) that the reply would follow.
5.7.3.3 Irregular refund of ITC availed on capital goods
Rule 89(4) of CGST Rules prescribes the formula for refund of accumulated ITC
in case of zero-rated supply of goods or services or both without payment of
tax. The “Net ITC” means input tax credit availed on input goods and input
services during the relevant period. It does not include ITC availed on capital
goods.
Further, as per Rule 89(5) of CGST Rules, in case of refund on account of
Inverted Duty Structure, “Net ITC” does not include ITC availed on Capital
Goods and Input Services.
Audit examination revealed that in respect of 25 cases of refunds under the
category of ‘Export without payment of tax’ and ‘Inverted Duty Structure’,
under 13 Commissionerates, the ‘Net ITC’ used while calculating the refund
amount included the ITC availed on capital goods resulting in excess refund of
₹ 1.83 crore, in contravention of the aforesaid provisions.
When pointed out in audit (December 2020 to September 2021), the
Department accepted the observation in 16 cases (8 Commissionerates) and
made a recovery of ₹ 84.07 lakh. In 3 cases, the Department (2
Commissionerate), while not accepting the observation, contested that ITC on
capital goods was eligible for refund. The reply is not acceptable since “input”
means any goods other than capital goods in view of the Rule 89(4). CBIC
Circular122 of November 2017 also clarified that ITC on capital goods was not
refundable. In the remaining six cases (5 Commissionerates), replies were
awaited.
122 CBIC circular dated 16 November 2017
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Two illustrative cases are mentioned below:

(a) A taxpayer under Kochi Commissionerate, was issued refund of
₹ 34.03 crore vide four sanctioned orders during December 2019 to January
2019 under Inverted Duty Structure category. It was noticed during audit that
the “Net ITC” included inadmissible ITC claimed on capital goods resulting in
excess refund of ₹ 56.23 lakh.
When Audit pointed this out (May 2021/December 2021), the Ministry
intimated (February 2022) recovery of ₹ 56.23 lakh and interest of ₹ 14.52 lakh
in June 2021.
(b) A taxpayer under the Guntur Commissionerate was sanctioned refund
of ₹ 74.98 lakh for the period from October 2018 to December 2018 under the
Inverted Duty Structure category. While calculating the refund amount as per
the formulae under Rule 89 (5) of CGST Rules, the ITC of ₹ 1.03 crore availed on
capital goods was incorrectly included in the Net ITC. The incorrect inclusion
of ITC on capital goods resulted in excess sanction of refund of ₹ 46.70 lakh.
When Audit pointed this out (March 2021/December 2021), the Ministry stated
(February 2022) that it was very difficult to distinguish ITC on capital goods or
input services out of total ITC for the relevant tax period. To obviate the
difficulties experienced by the proper officer, the Board had instructed (March
2020) to mention type of ITC availed in Annexure-B while filling the refund
application. Ministry further stated that an SCN had been issued to the
taxpayer.
5.7.3.4 Excess grant of refund due to non-reversal of ITC on exempted supplies
Section 17 (2) of the GST Act stipulates that when a registered person supplies
partly taxable supplies and partly exempted supplies, the amount of credit
shall be restricted to so much of the input tax as is attributable to the said
taxable supplies. If a supplier does not reverse the ITC pertaining to exempt
supplies, ITC in ECL gets inflated which results in excess sanction of refund. The
procedure for calculating the ITC attributable to exempt supplies is prescribed
under Rule 42 of CGST Rules.
In 54 cases under 18 Commissionerates123, Audit noticed excess grant of refund
of ₹ 2.93 crore due to non-reversal of ITC on exempted supplies in
contravention of the aforesaid provisions.
Department accepted the audit observation in three cases and intimated
recovery of ₹ 14.81 lakh in three cases. In three cases124, the Department
contented that exempted supply shown in GSTR-1 return was not on account
123 Under the category of Export without payment of duty and Inverted rate of tax
124 Coimbatore, Jaipur and Ludhiana
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of provision of any supply of goods or services, but it was on account of sale of

Merchandise Export from India Scheme (MEIS) License. Thus, reversal under
rule 42 of CGST rule was not applicable in the instant case.
The reply is not acceptable as MEIS is a duty credit scrip which attracts nil rate
of GST under Sl. No. 122A of the Notification dated 28 June 2017, as clarified
by the Board vide Circular dated 01 March 2018. Hence, in view of definition
of 'exempt supplies' under Section 2(47) of the CGST Act, the sale of licence is
an exempt supply. Accordingly, the claimant was liable to reverse ITC.
A taxpayer under Gurugram Commissionerate had applied for refund
amounting to ₹ 83.08 lakh for the period of October 2018, and the divisional
office had sanctioned the refund of ₹ 66.83 lakh under the category exports
without payment of tax in April 2019. Audit noticed that the taxpayer had nil
rated/exempted supply of ₹ 63.60 lakh but the taxpayer had not reversed the
ITC of ₹ 8.83 lakh as per Rule 42, which was not noticed by the Department.
This resulted in excess grant of refund of ₹ 7.02 lakh.
When pointed this out (April 2021), the Department accepted the observation
and reported recovery of ₹ 7.02 lakh.
Post-automation
Analysis of data pertaining to 9,970 cases involving refund amount of

₹ 7,242.66 crore revealed that although the taxpayers had shown exempted
supplies in GSTR-3B returns, they had not reversed the requisite ITC amount in
8,482 cases (85 per cent) involving refund of ₹ 3,781.57 crore. There is a risk
of not only grant of excess refund in these cases but also leakage of revenue
due to excess claim of ITC by the taxpayers who are mandated under the law
to reverse the ITC attributable to exempted supplies.
During detailed audit of 54 cases in 16 Commissionerates, Audit noticed that
the excess grant of refund due to non-reversal of ITC was ₹ 3.32 crore.
Recommendation 11: A system may be put in place to identify and monitor

taxpayers with significant amount of non-taxable/exempted supplies to
ensure timely reversal of ITC by them so that the same is not utilised or
claimed as refund.
Ministry, in respect of audit recommendation, stated (February 2022) that it

had been observed that initially, some of the taxpayers were not claiming ITC
pertaining to exempt or nil rated supplies and therefore, they were not
reversing any ITC as they have not availed any ITC in this regard. However, the
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same had been addressed through auto-population of GSTR-3B returns from

GSTR-2B, which would require the taxpayer to reverse the ITC attributable to
exempt and nil rated supplies. Further, DGARM is issuing a red flag report since
September 2021 in respect of such cases of non-reversal of ITC where taxpayer
is making both taxable and exempt/Nil rated supplies.
5.7.3.5 Irregular refund due to inclusion of lapsed credit in ‘Net ITC’
CBIC Notification dated 26 July 2018 allowed refund on account of Inverted

Duty Structure in respect of goods falling under Harmonised system of
nomenclature (HSN) 5516 (Textile and textile articles) received on or after
1 August 2018. It was clarified that the accumulated ITC lying unutilised in the
ECL after payment of tax for the month of July 2018 on the inward supplies,
received up to 31 July 2018, shall lapse. Board also clarified vide circular dated
24 August 2018 that ITC availed on inputs alone would lapse and not on input
services and capital goods.
Audit noticed irregular refund payment of ₹ 15.41 lakh due to non-reversal of
lapsed credit under Inverted Duty Structure in one case under Hyderabad
Commissionerate. In three other cases, Audit noticed that though the
taxpayer had reversed the lapsed credit, the Department did not adjust the
interest payable of ₹ 60.27 lakh on the belated reversal of lapsed credit before
releasing the refund amount.
Department intimated recovery of ₹ 32.47 lakh in three cases
(3 Commissionerates). Reply in the remaining cases was awaited (February
2022).
A taxpayer under Coimbatore Commissionerate had unutilised balance of ITC
of ₹ 66.81 lakh on account of Inverted Duty Structure. The refund included
accumulated ITC of ₹ 63.65 lakh, pertaining to the period prior to July 2018
which had lapsed. The omission to exclude lapsed credit had resulted in excess
grant of refund of ₹ 68.64 lakh, which was recoverable with interest of
₹ 31.40 lakh.
When Audit pointed this out (April 2021/December 2021), the Ministry
accepted (February 2022) the observation and stated that two SCNs for
₹ 66.81 lakh for the lapsed credit and ₹ 68.64 lakh for the erroneous refund
sanctioned to the taxpayer alongwith appropriate interest and penalty had
been issued.
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5.7.3.6 Excess refund due to non-consideration of ITC as per GSTR-2A
As per Section 54(4) (a) of the CGST Act, 2017, the application of refund shall
be accompanied by such documentary evidence as may be prescribed to
establish that a refund is due to the applicant. Initially during the manual
processing of refunds of accumulated ITC, the taxpayers were required to file
photo copies of invoices.
CBIC vide circular dated 4 September 2018 instructed that the proper officer
shall not insist on submission of invoices, if details of invoices are present in
GSTR-2A. If the invoices are not reflected in GSTR-2A, the proper officer may
call for the hard copies of such invoices for examination. With the intention of
curbing the practice of issue of fake invoices, a sub-clause (4) to Rule 36 of
CGST Rules was inserted vide notification dated 9 October 2019 according to
which ITC in respect of invoices/debit notes that were not uploaded by the
supplier were restricted to specified percentage (20% - between 9 October
2019 and 25 December 2019, 10% - between 26 December 2019 and
31 December 2020, and 5 per cent from 1 January 2021) of eligible credit as
per GSTR-2A.
The Board vide Paragraph 36 of Circular dated 18 November 2019 provided
that self-certified copies of invoices in relation to which the refund of ITC is
being claimed and which are declared as eligible for ITC in Annexure – B, but
which are not populated in FORM GSTR-2A, shall be uploaded by the applicant
along with the application in FORM GST RFD 01.
Subsequently, CBIC vide circular dated 31 March 2020 clarified that the refund
of accumulated ITC shall be restricted to the ITC as per the invoices, the details
of which are uploaded by the supplier in Form GSTR-1, and are reflected in the
Form GSTR-2A of the applicant.
Audit examination revealed that in 20 refund applications filed after 31 March
2020 in 11 Commissionerates, the net ITC for the relevant refund period had
not been restricted to the ITC reflected in GSTR-2A even after issue of aforesaid
Circular mandating reflection of invoices in GSTR-2A. The excess refund due to
deviation from the instructions amounted to ₹ 60.42 lakh.
Department intimated recovery of ₹ 11.26 lakh in two cases. Reply in the
remaining cases was awaited (February 2022).
Replies of the Ministry were awaited (February 2022).
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5.7.3.7 Excess refund as ITC pertained to time barred invoices
Sub-section 4 of Section 16 of the CGST Act provides that a registered person

shall not be entitled to take input tax credit on an invoice or debit note for
supply of goods or services or both after the due date of furnishing the return
by September following the end of the financial year to which such invoice or
debit note pertains or furnishing of the relevant annual returns, whichever is
earlier.
Audit noticed that in five cases, taxpayers had claimed refund of ITC taken on
time-barred invoices. The Input tax credit on these invoices was allowed and
the credit was irregularly refunded to the extent of ₹ 74.59 lakh.
A taxpayer under the Bengaluru North-West Central Tax Commissionerate, had
claimed refund for the period January 2020 to February 2020. The net ITC
considered for refund included input tax credit availed on time-barred invoices
that were more than one year old. This resulted in excess refund of
₹ 16.41 lakh.
Audit pointed this out in March 2021. Reply of the Department was awaited
(February 2022).
5.7.3.8 Irregular Refund of ITC to units placed in SEZ
Section 16 (3) of Integrated Goods and Services Tax Act, 2017 stipulates that
only the supplier of goods or services or both to SEZ Developer or SEZ
Co-Developer or SEZ Units is eligible for claim of refund and thus, there is no
provision for granting of refund to the SEZ unit in the IGST Act, 2017.
Rule 89 of CGST Rules, 2017 requires that SEZ unit/developers shall not avail
input tax credit on the supplies received by them from non-SEZ suppliers and
refund would be claimed only by the suppliers to the SEZ unit/developer. Thus,
SEZ unit cannot avail Input Tax Credit.
A taxpayer under the Chennai South Executive Commissionerate, filed three
claims for refund of IGST of ₹ 58.41 crore paid on export of services. Audit
observed that the taxpayer had paid the IGST utilizing irregularly availed/
inadmissible ITC of ₹ 83.60 crore. The Department sanctioned the refund
during May 2020 to June 2020 in disregard of the aforesaid provisions.
When Audit pointed this out (December 2020/December 2021), the Ministry
accepted (February 2022) the audit observation and issued SCN for
₹ 58.41 crore on erroneous refunds. The details of reversal of irregularly
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accumulated/availed credit of ₹ 25.19 crore, however, were awaited from the

Ministry.
5.7.4 Issue of refund despite deficiencies in refund applications
5.7.4.1 Sanction of refund without submission of requisite documents
Sub-rule (2) of Rule 89 of CGST Rules stipulates the list of documents to be

accompanied with the refund application. Where the documents are not
complete, a deficiency memo shall be issued by the Department as per
provisions of Rule 90 (3) of CGST rules.
It was noticed in audit that refund of ₹ 93.26 crore was sanctioned in 95 cases
by 17 Commissionerates125 although mandatory documents such as GSTR-2A,
Annexure-B and other documents were not filed by the taxpayers.
When Audit pointed this out (December 2020 to September 2021), the
Commissionerates126. In ten cases under four Commissionerates127, the
Department did not accept the observation and stated that Annexure-B
containing details of HSN-wise summary was obtained from the taxpayers and
no discrepancy was found on verification by the jurisdictional officer. In one
case, Department stated (March 2021) that the claimant submitted the
documents offline which were compared with the GSTR-2A online on the All-
in-one (AIO) portal. The Department further stated that the claimant could not
upload the document online due to system error. In the remaining 16 cases
under seven Commissionerates, replies were awaited (February to May 2021).
The reply is not convincing, as the tax payers had not submitted details of
HSN/Service Accounting Codes (SAC) of the goods/services in the modified
Annexure-B during uploading of refund application on the portal. Further,
offline submission of documents due to inability to upload documents in post-
automation period indicated that the system had not stabilised even after
lapse of two years. Further, acceptance of requisite documents offline does
not leave any audit trail, besides being contrary to the instructions of the
Board.
125 Coimbatore, Faridabad, Panchkula, Palghar, Shimla, Alwar, Jaipur, Kolkata South, Udaipur,
Ahmedabad South, Jodhpur, Guntur, Chennai South, Surat, Jalandhar, Mumbai Central, Kolkata North
126 Ahmedabad South, Alwar, Coimbatore, Faridabad, Jaipur, Jodhpur, Kolkata South, Mumbai Central,
Surat, Udaipur Commissionerates
127 Coimbatore, Panchkula, Ahmedabad South and Udaipur Commissionerates
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5.7.4.2 Irregular sanction of refund without ascertaining debit in electronic

credit ledger (ECL)
Rule 89 (3) of CGST Rules, 2017 provides that where a registered person has
claimed refund of any unutilized ITC from the Electronic Credit Ledger (ECL) in
accordance with the provisions of Section 54 of the CGST Act, 2017, the
amount to the extent of the claim shall be debited in the said ledger. Non-
compliance to the provision would entail risk to Government revenue as the
taxpayer may get refund even when there is no balance or lack of sufficient
balance in the ECL.
In two cases under two Commissionerates128, Audit noticed that although the
taxpayers had submitted the requisite ITC ledger along with the refund
application, debit of ₹ 4.17 crore, for which refund was claimed, was not
available in the ITC ledger.
Audit pointed this out during December 2020 to September 2021. Reply of the
Department was awaited (February 2022).
5.7.4.3 Sanction of refund without checking status of filing of returns
Section 54 (10) of the CGST Act provides that if a claimant has defaulted in
furnishing any return or who is required to pay any tax, interest or penalty, the
proper officer may withhold payment of refund due until the said person has
furnished the return or paid the tax, interest or penalty, as the case may be
and deduct from the refund due, any tax, interest, penalty, fee or any other
amount which the taxable person is liable to pay but which remains unpaid
under this Act or under the existing law.
The refund is required to be withheld to ensure that the taxpayer has paid all
the dues before the refund is sanctioned and if any tax is due it is recovered
from the refund amount. If the refund is granted without filing of the returns
by taxpayers, there is a risk of non-recovery of dues from the defaulting
taxpayer.
Audit analysed the GSTN data of post-automation cases and observed that
35,519 taxpayers were sanctioned refund of ₹ 3,546.85 crore even though
both GSTR-1 and GSTR-3B were not filed for the earlier periods. 16,561
taxpayers were sanctioned refund of ₹ 1,422.89 crore even though they had
not filed the GSTR-1 (though GSTR-3B was filed). 4,793 taxpayers were
sanctioned refund of ₹ 1,444.49 crore even though they had not filed GSTR-3B
(only GSTR-1 was filed) of the earlier periods.
128 Mumbai Central and Nagpur-
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Detailed audit in four Commissionerates129 revealed that in 11 refund cases,

although the GSTR-1/3B returns had not been filed by the taxpayers, the
Department sanctioned refunds of ₹ 8.51 crore in contravention of the extant
provisions. In six of the above cases, in two Commissionerates130, the claimants
had filed some of the due returns after the refund was sanctioned. The
Department, therefore, sanctioned the refunds of the claimants without
ensuring that the due returns were filed by the claimants.
On this being pointed out in audit (December 2020 to September 2021),
Department accepted the audit observation in three cases and intimated
recovery of ₹ 0.10 lakh (late fee) in respect of one case. In eight other cases,
pertaining to two Commissionerates, the Department did not accept the
observation and contended that, due to technical glitch, many times it so
happened that the updated returns were not visible in the portal-and as such,
there was no other option but to place trust on the claimant that the returns
would have been filed in time before applying for refund.
The reply is not acceptable as the Department should have expeditiously
addressed the technical issues to ensure adherence to the statutory provisions
for safeguarding government revenue.
5.7.5 Irregular sanction of refund under Inverted Duty Structure
3,625 cases of refund under the Inverted Duty Structure category were
examined in audit. The observations regarding excess refunds due to inclusion
of ineligible credits in “Net ITC” and consideration of incorrect Adjusted Total
Turnover have been included in para 5.7.2 of this report. Other audit
observations relating to Inverted Duty Structure are discussed in the
subsequent paras.
5.7.5.1 Ineligible refund under ‘Inverted Duty Structure’ on traded goods
Section 54 (3) of CGST Act stipulates that a registered person may claim refund
of any unutilized ITC at the end of any tax period where accumulation of credit
is on account of rate of tax on inputs being higher than the rate of tax on output
supplies, subject to the conditions prescribed. CBIC in its circular dated
31 March 2020 had clarified that refund of accumulated ITC would not be
applicable in cases where the input and the output supplies are the same
(traded goods). Thus, where the inputs and output supplies were same and
129 Ahmedabad North, Ahmedabad South, Bhavnagar and Dhimapur

130 Ahmedabad North and Ahmedabad South
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108
carried the same tax rate, there was no inverted duty structure and hence,
were not eligible for refund.
Audit observed lack of a mechanism to differentiate the turnover of supply,
where input and output were same, from the turnover of actual inverted rated
supply or to make a self-declaration in this regard in the refund application, for
the purpose of exclusion of such turnover while calculating the admissible
refund. The findings are discussed in the succeeding paragraphs:
It was noticed in 17 cases that there was excess refund of ₹ 1.19 crore under
‘Inverted Duty structure’ due to inclusion of turnover where input and output
supplies were the same.
On this being pointed out in audit (December 2020 to September
2021/December 2021), the Ministry informed (February 2022) that in one
case, SCN was being issued. Replies in the remaining cases were awaited
(February 2022).
An illustrative case is detailed below:
A taxpayer under Thiruvananthapuram Executive Commissionerate, was
sanctioned a refund of ₹ 11.73 crore in eight refund applications. The turnover
considered for computing maximum eligible refund irregularly included
outward supply of ‘Natural Rubber ’having GST rate of 5 per cent. The rate of
tax on inputs in this case was also 5 per cent. Since the inward and outward
supplies were the same, inclusion of turnover of outward supply of natural
rubber in the turnover of inverted rated supply was incorrect. The omission to
disallow this amount in the turnover resulted in excess sanction of refund of
₹ 97.29 lakh excluding interest.
When Audit pointed this out (February 2021/December 2021), the Ministry
accepted the audit observation and stated (February 2022) that an SCN would
be issued in due course.
5.7.5.2 Irregular refund under Inverted Duty Structure on exports with

payment of IGST
Rule 89(5) of CGST Rules, 2017 provides that in the case of inverted duty
structure, refund of input tax credit shall be granted as per the following
formula:
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and
services) x Net ITC ÷Adjusted Total Turnover} – tax payable on such inverted
rated supply of goods and services
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In four cases processed by Daman Commissionerate, the turnover of inverted

supply considered by the Department included exports with payment of tax.
The incorrect adoption of turnover resulted in excess sanction of refund of
₹ 1.12 crore.
On this being pointed out in audit (March and April 2021), the Department
intimated (April and May 2021) recovery of ₹ 25.98 lakh along with interest of
₹ 6.53 lakh in two cases. Replies in the remaining two cases were awaited
(July 2021).
5.7.5.3 Sanction of refund of inverted rate supply without ensuring export of
goods within the prescribed period by merchant exporter
Refund of accumulated ITC on account of inverted rate is sanctioned under
Section 54(3) of the CGST Act. Notification dated 23 October 2017 provides
for supply of taxable goods at the rate of 0.1 per cent by a registered supplier
to a merchant exporter registered with an Export Promotion Council or a
recognized Commodity Board for export subject to conditions that the
exporter shall export the goods within 90 days from the date of issue of
invoice; copy of purchase orders placed by the merchant exporter to the
supplier is provided to the jurisdictional tax officer of the supplier; and the
goods shall be moved from the place of registered supplier directly to the Port
or place of exportation.
Audit noticed in three cases processed by two Commissionerates131, that the
claimants were granted refund of ₹ 3.07 crore in respect of inverted supplies
made to merchant exporters under the aforesaid notification without verifying
the fulfilment of above conditions. This resulted in irregular sanction of refund
of inverted rate supply.
On this being pointed out in audit (February to May 2021), the Department
stated (February to March 2021) that the proof of exports was not submitted
by claimants, as it was not required under Section 54 (3) of the CGST Act or
under Circular dated 18 November 2019. They further added that the requisite
records have been called for submission to Audit.
The reply is not acceptable in view of the fact that although the said records
were not required under Section 54(3) of the CGST Act, the relevant
documents viz. shipping bill or bill of export containing details of GSTIN and tax
invoice of the registered supplier along with proof of export general manifest
are required as per notification dated 23 October 2017. The fact that the same
were being now called from the claimant indicates that these documents were
not submitted and verified by the Department before sanctioning the refunds.
131 Ahmedabad South and Surat
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5.7.5.4 Irregular refund of compensation cess under Inverted Duty Structure
category
CBIC in its Circular dated 30 May 2018 clarified that the refund of accumulated
ITC of compensation cess on account of zero-rated supplies made under
Bond/Letter of Undertaking is available even if the exported product is not
subject to levy of cess. The benefit of granting refund of compensation cess
was not extended to any other category of refunds.
In three cases132 , Audit noticed that the output supplies were exempt from
compensation cess and hence, its accumulation was not refundable. The
Department, however, incorrectly refunded the compensation cess of ₹ 3.20
lakh in contravention of the aforesaid provisions.
On this being pointed out in audit (January 2021 and March 2021), the
Department intimated (March 2021) recovery of ₹ 2.60 lakh in one case.
Replies in two cases were awaited (February 2022).
5.7.5.5 Sanction of refund without verifying the nature of outward supply
Services classified under Service Accounting Code (SAC) 9954 (Construction

services) have varying tax rates as per the service provided. The tax rates for
earth work to Government, construction related to oil exploration, works
contract services, and construction services are 5, 12, 12 and 18 per cent,
respectively. Refund of accumulated ITC on construction services is not
admissible, as it is taxable at 18 per cent while refund is available for works
contract services which are taxed below 18 per cent. Hence, it is difficult to
ascertain whether the accumulated ITC was on account of inverted supplies
unless additional documents/tax invoices are verified to ascertain the nature
of service.
A taxpayer under Ahmedabad South Commissionerate was supplying services
under SAC code 995428 (General construction services of other civil
engineering works nowhere else classified). Audit noticed that the taxpayer
while claiming refund had not submitted any documents to ascertain whether
the service provided was construction service or works contract service. The
Department sanctioned refund claim of ₹ 5.00 crore under the inverted duty
structure category without verifying the actual rate of GST payable on the
output supplies.
132 Kutch and Udaipur
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stated (February 2022) that SCN demanding erroneous refund of ₹ 11.06 lakh
with interest/penalty under CGST Act, 2017 had been issued to the taxpayer.
5.8 Other Issues
5.8.1 Irregular acceptance of time-barred refund claims
Section 54 of the CGST Act prescribes that the refund can be claimed before
the expiry of two years from the relevant date. In the case of refund of
accumulated ITC on account of inverted rate supply, the relevant date is the
due date for furnishing of return under Section 39 for the period in which such
claim for refund arises133. Similarly, in the case of export of goods without
payment of tax where the goods are exported by sea or air, the relevant date
is the date on which the ship or aircraft in which such goods are loaded, leaves
India. A proviso was included vide notification dated 18 May 2021 in Rule 90(3)
to exclude the time period between the date of filing the refund application
and the issuance of Deficiency Memo for the calculation of two years.
Audit noticed irregular refund of ₹ 28.16 crore in respect of 41 cases under 23
Commissionerates where the claims were filed after the relevant date resulting
in irregular sanction of refund.
Department, while accepting the audit observation in 16 cases
(8 Commissionerates) intimated recovery of ₹ 39.71 lakh in five cases
(4 Commissionerates). In eight cases (six Commissionerates), the Department
replied that the refund claim was filed within the stipulated time period of two
years. In the remaining 17 cases, replies were awaited (February 2022).
Illustrative cases are discussed below:
(a) A taxpayer under Ahmedabad Commissionerate had filed a refund
claim for ₹ 14.10 lakh on 5 May 2020 for the period July 2017 to March 2018,
which was time- barred. The omission to disallow the same resulted in irregular
sanction of refund to that extent of ₹ 14.10 lakh.
stated (February 2022) that an SCN had been issued to the taxpayer
(July 2021).
(b) A taxpayer under Bengaluru Northwest Central Tax Commissionerate,
had claimed refund of accumulated ITC amounting to ₹ 2.05 crore on account
of Inverted Duty Structure for the period July 2017 to March 2018 on 26 May
133 As per amendment wef 1 February, 2019.
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2020. The claim was refunded on 28 May 2020. The claim for the period from
July 2017 to January 2018 was time barred as the relevant date for filing the
GSTR 3B return for the period up to January 2018 was 10 March 2020. In this
case, the taxpayer had preferred the claim on 26 May 2020. Hence, the refund
sanctioned for the period up to January 2018 was irregular. The irregular
refund sanctioned in this case amounts to ₹ 2.05 crore.
When Audit pointed this out (April 2021/December 2021), the Ministry stated
(February 2022) that the claim was well within the time limit in view of
Notification dated 3 April 2020, wherein the time limit for compliance of any
action which falls within the period from 20 March 2020 to 29 June 2020 stands
extended to 30 June 2020. Reply of the Ministry is not tenable as the due date
for filing refund for the period up to January 2018 had expired on 10 March
2020 itself by virtue of Section 23 of the CGST (Amendment) Act 2018. Thus,
the taxpayer was not eligible for refund for the period from July 2017 to
January 2018.
(c) A taxpayer under Noida Commissionerate, had filed four refund
applications during January 2020 to March 2020 for amount of ₹ 21.29 crore
pertaining to the period September 2017 to November 2017 under the
Inverted Duty structure category. Audit examination revealed that in view of
the amendment w.e.f. 1 February 2019, which inserted an explanation (2)
below Section 54 that the relevant date was considered from “the due date of
furnishing the return under section 39 for the period in which such claim
arises”, the entire claim had become time barred as the application was
submitted after the amendment.
On being pointed out in audit, the Department replied that the change in time
limit for filing refund claim cannot have retrospective effect and thus, the
party had filed refund claim within the time limit.
The Department’s reply is not acceptable as the taxpayer had filed the refund
claim after the amendment and, therefore, the claim should have been
considered as time barred.
Reply of the Ministry in this regard was awaited (February 2022).
5.8.2 Irregular grant of provisional refund to ineligible taxpayer
Section 54 (6) of the CGST Act 2017 provides for sanction of refund on a
provisional basis in case of refund on account of zero-rated supply of goods or
services or both. Provisional refund cannot be granted in case of any claim on
account of ITC accumulated due to Inverted Duty Structure (INVITC) or ‘Excess
Balance in Cash Ledger’ (EXBCL).
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Audit noticed that provisional refund of ₹ 23.73 crore was irregularly granted
in 26 cases in 12 Commissionerate under the Inverted Duty Structure category.
In four cases, provisional refund of ₹ 1.19 crore was irregularly granted under
the category “Excess Balance in Cash Ledger” by four Commissionerates134 in
contravention of the aforesaid GST Act/Rules.
Department accepted the observation in respect of 14 cases pertaining to six
Commissionerates135. In two cases (one Commissionerate136), the Department
stated that the provisional refund was admissible under the category of ‘Excess
Balance in the Cash Ledger’ as per circular dated 15 November 2017, which is
incorrect.
In two other cases under two Commissionerates, the Department stated that
the proper procedure was being followed in sanctioning refund claims. The
reply is not acceptable as section 54 (6) of the CGST Act stipulates for grant of
provisional refund only in case of zero- rated supply. In the remaining 12 cases,
reply of the Department was awaited.
5.8.3 Erroneous sanction of refund on deemed export
Refund of taxes paid on deemed exports can be claimed only if the procedure
laid down in the Circular dated 6 November 2017 is substantively followed.
The circular provides that the recipient Export Oriented Unit (EOU)/ Electronics
Hardware Technology Park (EHTP)/ Software Technology Park (STP)/ Bio-
Technology Park (BTP) unit has to furnish to the supplier as well as the
jurisdictional GST officers in charge of the supplier the “Form-A”, duly
approved by the Development Commissioner mentioning therein the goods
that have to be procured from the Domestic Tariff Area. Commissioner
(Appeal), in case of M/s. Mega Jewels Pvt. Ltd. [2020 (42) GSTL 353], held that
refund was not admissible to the appellant EOU which had received supplies,
since it failed to comply with provisions of the CBIC Circular.
A taxpayer under the Gandhinagar Commissionerate had filed a refund claim
as recipient of goods. The taxpayer had not issued the requisite prior
intimation in Form-A for purchase of goods despite which the claim of ₹ 1.12
crore was sanctioned by the Department.
134 Alwar, Bolpur, Jabalpur and Noida

135 Alwar, Bhopal, Faridabad, Jabalpur, Kolkata North and Palghar
136 Bolpur
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stated (February 2022) that a Show Cause Notice for recovery of erroneous
refund had been issued.
5.8.4 Non-credit of ITC in the ECL after rejection of refund
Where any amount claimed as refund is rejected under Rule 92 of the CGST
Rules, 2017, the amount debited to the extent of rejection shall be re-credited
to the electronic credit ledger by an order made in FORM GST PMT-03. A
refund shall be deemed to be rejected, if the appeal is finally rejected or if the
claimant gives an undertaking in writing to the proper officer that he shall not
file an appeal. Also, where any deficiencies have been communicated in FORM
GST RFD-03, the amount debited under sub-rule (3) of Rule 89 shall be re-
credited to the electronic credit ledger.
Audit examination revealed that in 22,163 cases of post-automation period, an
amount of ₹ 5,085.66 crore was considered as inadmissible and the sanction
amount was reduced by that extent. Audit noticed that PMT-03 was issued
only in 3,686 cases involving inadmissible amount of ₹ 244.21 crore.
Therefore, in 18,477 cases involving inadmissible amount of ₹ 4841.35 crore,
PMT-03 was not issued resulting in the taxpayers not getting the re-credit of
the amount that was reduced from their claims.
During detailed audit in 16 Commissionerates, it was noticed that in 67 cases,
PMT 03 was not issued for re credit of ₹ 91.13 lakh. On this being pointed out
(December 2020 to September 2021), the Department accepted the audit
observation in three cases (three Commissionerates).
In 52 cases, Department (14 Commissionerates) while not accepting the audit
observation contended that for issue of PMT 03, the claimants were required
to reinitiate the process by filing a declaration that they would not file an
appeal, and that there was no time limit for issuing the PMT 03. In the
remaining 12 cases (six Commissionerates), replies were awaited.
The reply of Department is not acceptable in view of the fact that although
there was no prescribed time-limit, the taxpayer gets a maximum period of
120 days to file an appeal against the order. Once the taxpayer had not filed
an appeal within the prescribed time, it could be construed that the taxpayer
had accepted the sanction order and the Department was bound to issue PMT
03 and credit the amount to the taxpayer’s Credit Ledger. Further, once the
claimant agreed with the rejected amount in its reply in RFD-09, the claimant
itself lost the ground to go on appeal against the rejected amount. Thus, it
fulfilled the requirement of law and the PMT-03 was required to be issued.
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Recommendation 12: Department may consider introducing a system

regarding timely re-credit of rejected refund amount to ECL. In the event of
an appeal by taxpayer and the final decision going in favour of the taxpayer,
the amount shall be refunded back subject to debiting the same to ECL.
Ministry, in respect of audit recommendation, stated (February 2022) that the

matter would be taken up with GSTN.
5.8.5 Other cases
In addition to the foregoing audit observations, Audit noticed other

irregularities in 74 cases with money value of ₹ 4.44 crore. The irregularities
are in the nature of incorrect allowance of refund on exports to SEZ without
prescribed endorsement, non-payment of interest on delayed refund, non-
issue of show cause notice, non-issue of DRC-07137, etc.
Department accepted audit observations in 18 cases (nine Commissionerates)
and reported recovery of ₹ 6.42 lakh in six cases (five Commissionerates). In
18 cases, the Department (11 Commissionerates) did not accept the audit
observation. Reply of the Department was awaited in the remaining 38 cases
(February 2022).
5.9 Impact on State Goods and Services Tax
GST refunds involve various components of GST such as CGST, IGST, SGST, etc.
The refund applications processed either by the Centre or State tax authority
will impact the revenue of both Union and the States. For the audit
observations highlighted in this chapter, the monetary impact of findings on
the revenue of the States/UTs is given in Appendix-IV.
5.10 Conclusion
Timely refund process facilitates the taxpayers by providing much needed

liquidity and cash inflows. During the course of examination of records, Audit
observed systemic and compliance issues in relation to grant of refund by the
Department, which need to be addressed.
Systemic weaknesses included deficiencies in the automated refund module,
sanction of suspicious refunds to taxpayers without proper scrutiny, sanction
of refund without complete documents, absence of mechanism to monitor the
realisation of export proceeds in cases of export of goods/services, and
instances of double payment of GST refunds. As regards the effectiveness of
137 Digital summary of a demand order in GST
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the internal control system in processing and payment of refund cases, it was
observed that post-audit of refund cases needed to be strengthened.
On the compliance side, Audit noticed significant number of refund cases
where the Department did not adhere to the prescribed timelines for
processing of refunds leading to instances of delay in issue of
acknowledgement, deficiency memo and sanction of refund orders. Further,
in the majority of cases, the department did not pay interest to the taxpayers
in case of delayed refunds. In addition, instances of irregular/excess refund in
voilation of the statutory provisions were also observed.
Out of 12 audit recommendations, included in this Chapter, Ministry accepted
nine recommendations and stated that matter would be taken uip with
GSTN/DG(Systesm) in respect of eight recommendations. In respect of one
recommenmdation, Ministry stated that the matter would be taken up with
the field formations and advisory was being issued. Further, the Department
has accepted audit observations with money value of ₹ 92.08 crore and
recovered ₹ 52.93 crore at the instance of audit.
5.11 Summary of Recommendations
1. A comprehensive profiling of the taxpayers needs to be implemented

by integrating data from both internal and external systems such as
Income Tax, Directorate General of Foreign Trade, and Ministry of
Corporate Affairs. A system of real time/near real time red-flagging of
high-risk taxpayers/refunds may be implemented in the refund related
modules to avoid refunds of fake ITC.
2. The e-BRC module may be integrated with GSTN and cases where
export proceeds have not been received within the prescribed time
may be examined for overpayment of refund. This will also help
prevent possible frauds by identifying taxpayers who sought refunds on
fake exports.
3. A robust red flag system may be introduced by linking various systems
such as ICEGATE, e-BRC and XOS statement etc. to alert proper officers
in respect of non-compliant taxpayers for blocking their refunds and
initiating recovery of ineligible refunds already sanctioned.
4. The Department may consider introducing requisite validations in the
refund module to ensure that the eligible amounts are debited in the
prescribed order.
5. A comprehensive verification of PFMS data relating to the pre-
automaton period may be undertaken in all Commissionerates to
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identify double payment cases that may have occurred due to lack of
reconciliation.
6. A robust post-audit system based on detailed codified manual of
instructions, checklist and SOP may be put in place. A proper module
for post-audit of refunds may be introduced in the GST system for
effective monitoring.
7. In case of issue of acknowledgement after 15 days, the proper officer
should specify the reasons for such delay and the same should be
monitored online by the Department.
8. The provisions regarding payment of interest on delayed refunds need
to be amended to exclude the period of delays that is attributable to
the taxpayers such as delay in reply to SCN or incorrect bank details for
payment.
9. The GST system may be modified to automatically calculate the interest
amount payable to the claimant in case of delay in processing of
refunds beyond the prescribed time limit. Reasons for non-payment of
interest may be mandatorily captured in the system and monitored.
10. The Department needs to put in place an effective monitoring
mechanism to ensure timely issue of deficiency memos in case of
deficiency in the refund claims.
11. A system may be put in place to identify and monitor taxpayers with
significant amount of non-taxable/exempted supplies to ensure timely
reversal of ITC by them so that the same is not utilised or claimed as
refund.
12. Department may consider introducing a system regarding timely
re-credit of rejected refund amount to ECL. In the event of an appeal
by taxpayer and the final decision going in favour of the taxpayer, the
amount shall be refunded back subject to debiting the same to ECL.
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Chapter VI: Transitional Credits under GST
6.1 Introduction
The Goods and Service Tax (GST) replaced multiple taxes levied and collected
by the Centre and States. GST, a destination-based tax on supply of goods or
services or both, is levied at multi-stages wherein the taxes will move along
with supply. The tax is levied simultaneously by the Centre and States on a
common tax base and tax will accrue to the tax authority having jurisdiction
over the place of supply. Central GST (CGST) and Sate GST (SGST) /Union
Territory GST (UTGST) is levied on intra state supplies, whereas Integrated GST
(IGST) is levied on inter-state supplies. Availability of input tax credit of taxes
paid on inputs, input services and capital goods for set off against the output
tax liability is one of the key features of GST. This avoids cascading effect of
taxes and ensures uninterrupted flow of credit from the seller to buyer. To
ensure a seamless flow of input tax from the existing laws138 into the GST
regime, ‘Transitional arrangements for input tax’ were included in the GST Acts
to provide for the entitlement and manner of claiming input tax in respect of
appropriate taxes or duties paid under the existing laws.
6.2 Transitional arrangements for input tax
Section 140 of the CGST Act 2017 (and SGST Acts/UTGST Acts) enables the
taxpayers to carry forward the Input Tax Credit (ITC) earned under the existing
laws to the GST regime. The section, read with Rule 117 of CGST Rules 2017,
prescribes elaborate procedures in this regard. Under transitional
arrangements for ITC, the ITC of various taxes paid under the existing laws such
as Central Value Added Tax (CENVAT credit), State Value Added Tax (VAT) etc.
are eligible to be carried forward into GST under the relevant sub-sections of
Section 140 of the Act. The claims are to be preferred in the appropriate tables
mentioned below, in two forms –Tran 1 and Tran 2.
138 Central Excise, Service Tax and State Value Added Tax
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Table 6.1: Forms and Tables prescribed for claiming Transitional credit
Form Table No Transitional credit component
Tran 1 5(a) Closing balance of credit from the last legacy returns
Tran 1 6(a) Un-availed credit on capital goods
Tran 1 7(a)A Credit on duty paid stock with invoices
Tran 1 7(a)B Credit on duty paid stock without invoices
Tran 1 7(b) Credit on Inputs/input services in transit
Tran 1 8 Transfer of credit by centrally registered units
Tran 1 11 Credit in respect of tax paid before the appointed day (01 July 2017)
and supply made after the appointed day
Tran 2 4 Credit afforded on stocks claimed without invoices
All registered taxpayers, except those opting for payment of tax under
composition scheme (under section 10 of the Act), are eligible to claim
transitional credit by filing Tran 1 return within 90 days from the appointed
day. The time limit for filing Tran 1 return was extended initially till
27th December 2017. However, considering that many taxpayers could not file
the return within the date due to technical difficulties, sub-rule 1A was
inserted under Rule 117 of CGST Rules, 2017 139 to accommodate such
taxpayers. The due date for filing Tran 1 was further extended to 31 st March
2020140 for those taxpayers who could not file Tran 1 due to technical
difficulties and those cases recommended by the GST Council.
6.3 Trends and perspectives
The transitional credit being a one-time flow of input tax credit from the legacy
regime into the GST regime, can be availed both by the taxpayers migrating141
from the previous regime as well as new registrants under GST. A total of 10.13
lakh142 taxpayers had claimed the benefit of transitional credit of
₹ 1,72,584.96143 crore under the Act, out of which 3.46 lakh taxpayers
constituting 34 per cent of the taxpayers were on the Central side. The
transitional credit claims of these 3.46 lakh taxpayers accounted for
₹ 1, 34,029.23 crore constituting 78 per cent of the total transitional credit
claimed under the Act. The distribution of the credit claimed by these
taxpayers under various sub-sections of the Section 140 of the Act is depicted
in Chart 6.1.
139 Vide Notification 48/2018 CT dated 10th September 2018

140 Vide CBIC order No.01.2020-GST dated 07th February 2020
141 Taxpayers registered under existing Central Excise and Service Tax laws, now registered under Rule
24 of CGST Rules, 2017
142 Figures extracted (July 2021) from GSTN- Goods and Services Tax Network
143 Source: GSTN (December 2021)
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Chart 6.1: Table-wise break up of transitional credit claims
₹968.89Cr, 1% ₹89407.95Cr, 67%

Table 5(a)
₹7332.78Cr, 5%
Table 6(a)
₹1444.91Cr, 1%
Table 7(a)A
Table 7(a)B
Table 7(b)
₹30562.94Cr, 23%
₹4311.76Cr, 3% Table 11
The transitional credit claims broadly flow from two sources viz., Legacy
Returns and Books of Account. A significant majority of 70 per cent of claims
represented by claims in Tables 5(a) and 6(a) flowed through the legacy returns
as they signify claims declared as per legacy rules and the remaining 30 per
cent represented by claims in other tables flowed from the books of accounts
as they denote fresh declarations while transitioning into the GST regime.
a) Impact of transitional credit claims on GST collection: Transitional credit
being the input tax credit carried forward from the legacy tax regime, would
get set off against the tax liability under GST. The data on GST revenue
collection provides a broad perspective of the impact of transitional credit
claimed vis-à-vis the GST revenue, especially during the transition period. The
Chart 6.2 on monthly GST revenue144 collection suggests that the bulk of the
transitional credit had potentially been utilized for the payment of tax for the
month of July 2017 itself.
144 GST revenue collection consist of CGST, SGST, IGST and Cess
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Chart 6.2: GST Revenue Snapshot for the year 2017-18
120000
95633 94064 93333 92167
100000 89825
83780 84314 85962
80000
60000
40000
21572
20000
0
GST Revenue ₹ in Crore
July August September October November
December January February March Linear (July)
Source: GST council newsletter 07.10.2019
b) Transitional credit as a focus area: In this context, the Central Board of

Indirect Tax and Customs (CBIC), or the Board, had considered verification of
transitional credit as a focus area for the year 2018-19 and identified the top
50,000145 taxpayers in the order of transitional credit claimed, across the
country, for detailed verification. The transitional credit claims of these 50,000
taxpayers constitute the majority of transitional credit claims on the Central
side.
Transitional credit claims directly impact GST revenues as the credit is eligible
for set off against the output tax liability of taxpayers. Thus, the audit of
transitional credit was taken up with the following objectives seeking
assurance on:
i. whether the mechanism envisaged by the Department for verification
of transitional credit claims was adequate and effective; and
ii. whether the transitional credits carried over by the taxpayers into GST
regime were valid and admissible.
6.5 Audit scope and sample
The audit scope comprised review of the CGST component of transitional

credit claims filed by the taxpayers under Section 140 of the CGST Act 2017
145 Transitional credits of 50,000 taxpayers in order of transitional credit availed - source Antarang data
set: Antarang is the Intranet platform for officers of the Central Board of Indirect Taxes and Customs
122
122
from the appointed date146 to the end of March 2020. The top 50,000 cases of
CGST portion of transitional claims (Antarang data set), identified by the Board,
constituted the population from which the audit sample was drawn. A pan-
India sample of 8,514 cases was drawn based on data analysis of the 50,000
cases and its associated data sets on the following parameters:
i. Taxpayers who had claimed Transitional credit under table 5(a) in excess
of the closing Cenvat credit balance available as per the legacy returns
filed for the period immediately preceding the appointed day.
ii. Taxpayers whose Cenvat claim in the last six months immediately
preceding the appointed day showed a growth of 25 per cent or more.
iii. Transitional claims of manufacturers or service providers who had
claimed transitional credit under column 7B of Table 7a.
iv. Transitional claims in Table 5(a) or 6(a) without corresponding legacy
data.
Based on the above parameters, these 50,000 cases were categorized into two
strata:
Strata I: The list of taxpayers satisfying any of the data analytic checks, which
would constitute potentially risk prone cases for verification; and
Strata II: The list of taxpayers not satisfying the data analytic checks, which are
comparatively less risk prone.
The sample size of 8,514 cases represented a transitional credit of
₹ 82,754.77 crore and constituted about 62 per cent of the total transitional
credit on the Central side. 75 per cent of the sample size was drawn from Strata
I and 25 per cent from Strata II. A scorecard approach based on the risk and
materiality was used for selection of individual cases from each of the Strata.
The strata wise sample size and its representation vis-à-vis the respective
population is given in Table 6.2:
Table 6.2: Strata wise sample size vis-à-vis the respective population
Description Strata I Strata II
Population* 28,813 20,240
Sample size 6,392 2,122
Percentage of coverage 22.18 10.48
*claims less than Rs.20 lakh were excluded from the 50,000 cases.
Out of the sample of 8,514 claims, 3,938 taxpayers come under the Central Tax
jurisdictions and 4,573 taxpayers are under the State GST jurisdictions147. The
sample was distributed among nine field Audit Offices of the C&AG
146 The date on which the provisions of this Act come into force, ie 1st July 2017
147 Information in respect of three cases was not available
123
123
represented by the respective Director General/ Principal Director of Audit

(Central).
6.6 Audit methodology
The methodology adopted for audit of transitional credit claims involved data
analysis for determining the nature and extent of audit followed by review of
records pertaining to Tran returns maintained in the field formations,
verification process adopted by the department, follow up action taken on the
deviations detected and the process adopted for implementation of cross-
jurisdictional functions regarding transitional credit. It also involved an
independent examination of selected transitional credit claims. The
verification of Tran returns was carried out by leveraging the SSOID148 access
to the CBIC-GST application supplemented by review of underlying records
either at the Audit Commissionerates or at jurisdictional offices under the
Executive Commissionerates. The findings in this report were discussed during
the Exit Conference held with CBIC in February 2022.
The draft SSCA report was issued to the Ministry for comments on 12 January
2022. Audit findings and recommendations were discussed with the
Department during Exit Conference held on 7 February 2022. The Ministry’s
reply, received in February 2022, has been incorporated in the Chapter
wherever applicable.
6.7 Audit criteria
Section 140 of the CGST Act 2017 governs the transition of Cenvat credit from
legacy Central Excise and Service Tax provisions. This section, read with Rule
117 of the CGST Rules 2017, and relevant Notifications/Circulars issued by
CBIC, constituted the criteria for this audit.
6.8 Scope limitation
The audit of transitional credits was primarily dependent upon the extent of
verification records maintained by the Department and accessing the
underlying records maintained by the taxpayer. As the sample selection was
out of the population identified by the Department for verification, it was
envisaged that the CBIC departmental field formations would provide
verification records and the associated underlying records of taxpayers, which
established the basis of verification by the department. Detailed audit of the
148 Single Sign On Id (SSOID) is a secure authenticated access to CBIC-GST application
124
124
selected sample of transitional credit claims was carried out by the nine field
audit offices.
In spite of requisitions and follow up, the CBIC departmental formations did
not produce records of 954 claims. As a result, 11 per cent of sample size
representing ₹ 6,849.68 crore of transitional credit claimed could not be
audited. Further, in another 2,209 cases representing ₹ 19,660.72 crore of
credit claimed, records were partially produced as the relevant underlying
records determining the eligibility of credit were not produced, which
constituted a substantial scope limitation. Additionally, record keeping by the
departmental field formations varied widely and maintenance of records for
verified cases was inadequate in many of the jurisdictions.
The details of non-production, partial production and inadequate maintenance

of verification records in jurisdictional formations are brought out in the
6.8.1 Non-production of records
The jurisdiction wise non-production of records is given in Table6. 3.

Table 6.3: Non-production of records reported by Field Audit Offices
Amount in crores of ₹
Jurisdictional zone of Sample Non-production
CBIC Number of Amount of Number of Amount of Credit
claims Credit claims
Meerut 494 3,466.03 294 1,676.82
Bhopal 633 4,157.63 162 1,057.78
Ranchi 273 1,663.38 111 792.93
Delhi 333 2,071.34 70 593.34
Lucknow 146 1,186.63 67 334.14
Bengaluru 511 5,691.79 61 542.19
Hyderabad 635 2,166.10 61 39.99
Visakhapatnam 406 1,871.16 48 204.62
Mumbai 435 23,987.95 21 500.03
Chandigarh 173 986.10 19 42.33
Other zones149 4,475 35,506.66 40 1,065.51
Total 8,514 82,754.77 954* 6,849.68
* Note: Out of this, Ministry stated (February 2022) that 103 cases have since been produced
to Audit, which would be audited and reported upon separately.
The non-production constituted 11 per cent of the sample size in terms of

number and 8 per cent in terms of amount of credit claimed. For these cases,
neither the departmental records nor the taxpayer records were provided for
149 Kolkata- 13 cases (` 449.95 crore), Pune -9 cases (` 134.81 crore), Chennai – 5 cases (` 17.06 crore),
Nagpur -5 cases (` 22.17 crore), Thiruvananthapuram- 2 cases (` 27.64 crore), Vadodara – 4 cases
(` 410.31 crore), Panchkula- 2 cases (` 3.56 crore)
125
125
audit. The top 50 claims that could not be audited represent transitional credit
of ₹ 3,954.21 crore. The top five cases among these amounted to
` 1,275.22 crore.
Ministry, while providing (February 2022) a detailed response, admitted non-
production of records in 282 cases, did not admit non-production of records in
250 cases, and stated that the remaining 422 cases were being reconciled and
assured that all these cases would be provided in due course.
Out of the 250 cases where Ministry did not admit non-production of records,
the Ministry stated that in 95 cases taxpayers were not forthcoming with the
records. Even though the Department may have pursued production of records
with the taxpayers, the fact remains they have not been produced for audit.
The remaining cases pertained to either the taxpayers being in a different
jurisdiction (52 cases) or cases that have since been produced to Audit
(103 cases). These cases will be reviewed subsequently by Audit.
6.8.2 Partial production of records
The jurisdiction wise partial production of records is given in Table 6.4. In these
cases, the underlying records150 for evaluating the eligibility of the credit were
not produced.
Table 6.4: Partial production of records reported by Field Audit Offices
Amount in crores of ₹
Jurisdictional Sample Partial production
zone of CBIC Number of Amount of Number of Amount of Credit
claims Credit claims
Kolkata 1,232 3,188.24 917 2,157.56
Panchkula 312 7,274.11 226 6,157.92
Meerut 494 3,466.03 195 1,772.63
Delhi 333 2,071.34 167 1,164.26
Guwahati 379 1,559.58 151 1,343.08
Hyderabad 635 2,166.10 83 512.89
Lucknow 146 1,186.63 79 852.50
Visakhapatnam 406 1,871.16 76 430.12
Chennai 582 7,024.07 67 1,099.35
Ahmedabad 180 3,824.00 57 2,185.89
Vadodara 234 3,454.18 53 867.98
Other zones151 3,581 45,669.33 138 1,116.54
Total 8,514 82,754.77 2,209* 19,660.72
* Note: Out of this, Ministry stated (February 2022) that 333 cases have since been produced
to Audit, which would be audited and reported upon separately
150 Duty paid documents, Asset ledger, Stock statements etc.,

151 Bhopal- 50 cases (` 537.26 crore), Chandigarh- 41 cases (` 184.06 crore), Thiruvananthapuram-14
cases (` 14.35 crore), Ranchi- 25 cases (` 319.91 crore), Jaipur- 8 cases (` 60.96 crore)
126
126
The partial production accounted for 26 per cent of the sample size in terms of
number and 24 per cent in terms of amount of credit claimed. Of these, the
amount of transitional credit claimed by the top 50 cases amounted to
₹ 11,347.81 crore. The top five cases of partial production amounted to
` 5,116.15 crore.
Of the cases where records were partially produced, Audit observed
irregularities in 539 cases involving a transitional credit claim of
₹ 6,606.34 crore, representing a potential risk exposure as Audit could not
perform all the envisaged detailed audit checks due to absence of the relevant
underlying records.
Ministry, while providing (February 2022) a detailed response, admitted partial
production in 980 cases, did not admit partial production of records in 638
cases, and stated that the remaining 591 cases were being reconciled and
assured that all these cases would be provided in due course.
Out of 638 cases where Ministry did not admit partial production of records,
the Ministry stated that in 225 cases taxpayers were not forthcoming with the
records. Even though the Department may have pursued production of records
with taxpayers, the fact remains that they have not been produced for audit.
The remaining cases pertained to either the taxpayers being in a different
jurisdiction (80 cases) or cases that have since been produced to Audit (333
cases). These cases will be reviewed subsequently by Audit.
6.8.3 Inadequate maintenance of verification records
The mechanism of carrying out verification of transitional claims differed

between the jurisdictions. In some jurisdictions, the Audit Commissionerates
carried out the verification while in the majority of the jurisdictions the
verification was carried out both by the Executive Commissionerates and by
the Audit Commissionerates. Though the CBIC had issued (March 2018) a
guidance note152 prescribing a set of checks for verification of CGST transitional
credit, it did not specify the nature, extent, and period of maintenance of
documentation of the verification process carried out by the departmental
field formations. The record keeping by the Audit Commissionerates and the
Executive Commissionerates varied widely and was inadequate in many of the
jurisdictions. Out of the sample size of 8,514 cases, of which 954 cases were
not produced to Audit, the department had verified 6,999 claims. However,
verification reports in respect of 1,800 claims out of 6,999 claims were not
produced to Audit. The top five cases of non-production of verification reports
amounted to ` 3,270 crore.
152 Chairman CBIC reference - D.O.F. No.267/8/2018-CX.8 dated 14th March 2018
127
127
Audit observed irregularities in 1,132 cases (16.17 per cent) out of 6,999 cases
(including partial production) verified by the Department; due to inadequate
maintenance of verification records the efficacy of verification process carried
out by the departmental field formations could not be evaluated fully.
Ministry provided (February 2022) a response to the top five cases of non-
production of verification records and stated that in four cases either the
verification is yet to be concluded or verification reports have since been
provided to audit, while in one case the Ministry assured a reply in due course.
These cases, along with other cases of non-production, are envisaged to be
audited and reported upon separately.
6.9 Audit findings
Considering that the detailed audit addressed issues from a systems

perspective as well as from an implementation perspective, the audit findings
have been categorized as systemic and compliance findings. While systemic
issues address the adequacy and effectiveness of the envisaged verification
mechanism, the compliance issues address the deviations from the provisions
of the Act/Rules. As brought out in para 6.8 above, non-production of
underlying records of taxpayers and departmental verification records
constituted a significant limitation of scope of our audit. Subject to this
constraint, the outcome of detailed audit of the transitional credit cases
produced to Audit has been included in the subsequent paragraphs.
6.9.1 Systemic issues
The systemic issues comprised a review of the verification mechanism

envisaged by the department in terms of extent of coverage against the
targets, policy/procedural gaps in the verification mechanism, challenges with
dual control and efficiency of the recovery process.
Apart from the statutory requirements prescribed under both Legacy as well
as GST laws, the Board had specified transitional credit verification as one of
the key focus areas for the year 2018-19. The Board while identifying cases of
transitional credit claims, accorded priority to verification of cases where the
closing balance of Cenvat Credit between October 2016 and June 2017 had
shown a growth of 25 per cent or more. The guidance note of March 2018
issued by the Board contained a checklist for verification of transitional credit
claims and stated, inter-alia, that CGST officers have jurisdiction for verification
of transitional credit of CGST component irrespective of the current
jurisdiction of taxpayers (Centre or State) in GST. The CBIC jurisdictional
formations took up verification in four phases to be completed by March 2019.
128
128
Audit review indicated inadequacies in the verification mechanism envisaged

by the Department. The verification process was not yet completed even after
a lapse of more than two years from the targeted completion date. In respect
of verified cases, the recovery rate was lower.
Out of the audit sample of 8,514 cases, the Department has not verified 1,515
cases (18 per cent) and recovery actions were not initiated in 1,042 cases (12
per cent). Most of these cases, i.e. 846 cases pending for verification and 562
cases pending for recovery action were under the State jurisdiction suggesting
that provisions of Section 6(1) of the Act establishing dual control were not
enforced effectively in some zones, despite clarification in the guidance note.
Audit also noticed that, in Meerut and Lucknow zones, the cases were pending
verification due to non-resolution of jurisdictional issues within/between
Central Tax Commissionerates.
6.9.1.1 Progress of verification
Audit noticed that 8,849 cases, out of the 50,000 identified cases, were
pending verification as of November 2021. Ministry attributed the pendency
to non/partial submission of documents by taxpayers, units being
closed/defunct/under National Company Law Tribunal (NCLT) proceedings,
Show Cause Notices being issued and verification being in progress for cases
where documents were received. Audit indicated that pendency in verification
was also influenced by jurisdictional issues:
(i) Cross jurisdiction: Out of the 8,849 cases which are yet to be verified,
1,515 cases were represented in the audit sample, of which 846 cases
constituting 56 per cent of the cases pending verification were under the
jurisdiction of the States. The issue was predominant in five zones as shown in
Table 6.5 suggesting that dual control provisions envisaged under Section 6(1)
of the Act and Department’s guidance note specifying that CGST officers shall
have the jurisdiction for verification of Transitional credit of CGST irrespective
of the present jurisdiction of the taxpayer, could not be effectively
implemented in these zones.
Table 6.5: Cases pending verification under the State jurisdiction
Zone Claims yet to be verified Under State jurisdiction
Delhi 181 113
Kolkata 668 400
Meerut 119 93
Bhopal 98 53
Panchkula 92 49
Other zones 357 161
Total 1,515 846
129
129
Report
Report
Report
No. 5No.
No.
of 2022
55 of
of 2022
(Indirect
2022 (Indirect
(Indirect
TaxesTaxes
Taxes
– Goods
–– Goods
Goods
and Services
and
and Services
Services
Tax) Tax)
Tax)
(ii) (ii)
Co-ordination
Co-ordination amongst
amongst central
centraljurisdictional
jurisdictional
formations:
formations: The The
information on reasons
information for pendency
on reasons of verification
for pendency was not
of verification wasforthcoming fromfrom
not forthcoming
19 out
19of out
the
of21
thezones.
21 zones.
FromFrom
the data
the data
provided
provided
by Lucknow
by Lucknow
and Meerut
and Meerutzoneszones
it emerges
it emerges
that that
318 318
cases,
cases,
as detailed in Table
as detailed in Table
6.6, 6.6,
werewere
not verified
not verified
due due
to to
lack lack
of co-ordination and and
of co-ordination clarity between
clarity betweenvarious formations
various within
formations the the
within
Commissionerate
Commissionerate or or
between
between Commissionerates
Commissionerates on ondeciding
decidingthe the
departmental
departmentalformation
formation
that that
should
should
verifyverify
the transitional
the transitional
credit
credit
claim.
claim.
TableTable
6.6: Cases
6.6: Cases
pending
pending
verification
verification
for jurisdictional
for jurisdictional
issues
issues
Zone Zone
Zone CGST CGST
CGST CasesCases
Cases Number Number
Number
of cases
of
of cases
cases
not not
verified
not verified
verified
due due
due
to Percentage
to
to Percentage
Percentage
Commission
Commission
Commissionpending
pending
pending jurisdictional
jurisdictional
jurisdictional
issue issue
issue of pendency
of
of pendency
pendency
erateserates
erates verificati
verificati
verificati WithinWithin
Within Between
Between
Between
on on on Commissionerate
Commissionerate
CommissionerateCommissionerates
Commissionerates
Commissionerates
Meerut
Meerut
Meerut Ghaziabad
Ghaziabad
Ghaziabad 181 181
181 81 81 81 10 10
10 50 50
50
Meerut
Meerut
Meerut NoidaNoida
Noida 318 318
318 133 133
133 44 44
44 56 56
56
Lucknow
Lucknow
LucknowKanpur
Kanpur
Kanpur 36 36 36 Nil Nil
Nil 31 31
31 86 86
86
Meerut
Meerut
Meerut G B Nagar
G
G BB Nagar
Nagar 29 29 29 12 12 12 7 77 66 66
66
Total Total
Total 564 564
564 226 226
226 92 92
92 56 56
56
Ministry
Ministrystated
stated
(February
(February
2022)2022)
that that
all all
81 81casescases
of Ghaziabad
of Ghaziabad
Commissionerate
Commissioneratehavehavesincesincebeenbeenre-allottedre-allottedto tojurisdictional
jurisdictional
ranges/divisions.
ranges/divisions. Ministry
Ministry
further
further
stated
stated
that that
nownowno case
no case
was was
pending
pending
verification
verification
at Kanpur
at Kanpur
Commissionerate,
Commissionerate,
and 26andout
26of
out
the
of29
thecases
29 cases
havehave
sincesince
beenbeen
verified
verified
at G at
B Nagar
G B Nagar
Commissionerate
Commissionerate (the (the
remaining
remaining
threethree
casescases
havehave
beenbeen
forwarded
forwarded
to Noida
to Noida
Commissionerate).
Commissionerate).
6.9.1.2
6.9.1.2
Follow
Follow
up measures
up measures
to recover
to recover
ineligible
ineligible
claims
claims
As per
As Rule
per Rule
121 121
of CGST
of CGST
RulesRules
2017,2017,
transitional
transitional
credit
credit
wrongly
wrongly
availed
availed
and and
credited
credited
to Electronic
to Electronic
Credit
Credit
LedgerLedger
(ECL)(ECL)
153 under
153
153 under
sub-rule
sub-rule
(3) of(3)
rule
of 117
rule may
117 may
be recovered
be recovered
under
under
section
section
73 or,
73asor,the
ascase
the case
may may
be, under
be, under
section
section
74 of74the
of the
Act. Act.
Further,
Further,
adequacy
adequacy
of theof verification
the verificationmechanism
mechanism
is determined
is determined by the
by the
outcome
outcome
of the
of examination,
the examination,continued
continuedfollowfollow
up and
up and
initiation
initiation
of recovery
of recovery
measures
measures
against
against
the irregularities
the irregularities
detected.
detected.
The Ministry
The Ministry
of Finance
of Finance
statedstated
(June(June
and November
and November 2021)2021)
that that
verification
verification
of of
transitional
transitional
credit
credit
claims
claims
had resulted
had resulted
in detection
in detection
of irregular
of irregular
ITC to
ITCthe
totune
the tune
of ₹ of
8,378
₹ 8,378
crorecrore
out of
outwhich
of which
₹ 3,135
₹ 3,135
crorecrore
had had
beenbeen
recovered.
recovered.Ministry
Ministry
of of
Finance
Finance
also also
stated
stated
that that
out ofouttheofdetected
the detected
irregularities,
irregularities,
recoveries
recoveries
werewere
yet yet
to betoeffected
be effected
fromfrom
4,1724,172
taxpayers
taxpayers
and attributed
and attributed
the lower
the lower
rate rate
of recovery
of recovery
to taxpayers
to taxpayers
contesting
contesting
the case,
the case,
not complying
not complyingwithwith
the detection
the detection
despite
despite
follow
follow
up and
up filing
and filing
appeals
appeals
in High
in High
Courts.
Courts.
153 Electronic
153 Electronic
153 Electronic
CreditCredit
Credit
LedgerLedger
Ledger
refersrefers
refers
to theto
to
ledger
the
the ledger
ledger
mentioned
mentioned
mentioned
underunder
under
Section
Section
Section
49(2) 49(2)
of
49(2)
CGST
of
of CGST
Act,
CGST2017,
Act,
Act, 2017,
2017,
to to
to
whichwhich
which
the amount
the
the amount
amount
of ITC of
of
claimed
ITC
ITC claimed
claimed
shall be
shall
shall
credited
be
be credited
credited
130
130 130
130
Out of 4,172 cases where recoveries were not initiated, 1,042 cases were
covered in our sample of which 562 cases were under the jurisdiction of the
States. In detailed audit, we noticed that in 32 claims, where the verification
had resulted in detection of ineligible credit amounting to ₹ 68.89 crore,
recovery measures were not initiated even after a lapse of two years of
verification. The inordinate delay in initiation of recovery measures may
potentially hamper the realisation of revenue due to the Government. An
illustrative case is given below:
Verification of transitional credit claims of a taxpayer under Ahmedabad South
Central Tax Commissionerate, by the Audit Commissionerate had resulted in
detection of ineligible carry forward of credit of Education Cess, Secondary and
Higher Education Cess, Krishi Kalyan Cess and Clean Energy Cess amounting to
₹ 23.58 crore (September 2018). The taxpayer did not agree with the
contention of the Department and did not reverse the irregular credit claimed.
However, the Department had not initiated any action to recover the ineligible
credit pointed out even after a lapse of three years from the verification.
When Audit pointed this out (March 2021) the Ministry stated (February 2022)
that a draft SCN had been submitted to the competent authority.
6.9.1.3 Conclusion and Recommendations
Overall, 37 per cent of the cases selected for detailed audit were either not
produced or partially produced for audit, which constituted a significant
limitation on Audit scope. Further, most of the jurisdictions did not
maintain/produce basic verification records.
From a system’s perspective, Audit observed that though the Department had
identified the top 50,000 cases for verification as a priority for 2018-19, the
exercise was not yet completed, and the Department was yet to verify 8,849
cases. The rate of recovery of detected irregularities was low. Cross
jurisdictional issues and lack of co-ordination in Central Tax jurisdictions in
some zones impeded verification and initiation of recovery actions. In view of
these findings, we recommend the following:
The Department may:
1. Ensure production of records for cases for which envisaged detailed audit
checks could not be completed. These will be reviewed subsequently by
Audit.
2. Address the issue of inadequate maintenance of verification records in
the jurisdictional formations as they are not amenable to review in the
present form.
131
131
3. Expedite verification of CGST portion of transitional credit claimed by the

taxpayers under the State administration in the zones where the bulk of
the non-verified cases are under the State jurisdiction.
Ministry provided an updated status of verification and stated (February 2022)
that another 4,770 cases had since been verified and 4,079 cases were pending
verification, and that irregular ITC detection had gone up to ₹ 10,965.91 crore
out of which ₹ 3,596.10 crore had been recovered. Ministry also stated that
the Board was actively monitoring the expeditious verification of transitional
credit claims.
6.9.2 Compliance issues
The compliance issues pertain to the validity and admissibility of the

transitional credits carried over by the taxpayers into GST regime. Taxpayers
were required to claim transitional credits in the various specified Tables154 of
Tran 1 and Tran 2 Forms as applicable. Broadly, these tables provide for credit
in respect of Cenvat credit carried over from the legacy Returns ER1 (Central
Excise) and ST3 (Service Tax), unavailed Cenvat credit in respect of capital
goods, Cenvat credit in respect of inputs/semi-finished goods/finished goods
held in stock and Cenvat credit of inputs or input services in transit. The sample
identified for audit represented claims under each of these tables.
Audit review disclosed significant irregularities in the transitional credit claims
of taxpayers across various categories regulated by the sub sections of Section
140, Section 142(11) as well as Section 50(1) of the CGST Act 2017 pertaining
to payment of interest. The summary of the nature and extent of compliance
deviations noticed in the audited sample is given in Table 6.7:
154 Tran 1-Tables: 5(a)-Closing Credit balance of legacy returns; 6(a)-Unavailed credit on capital goods;
7a(A)-Credit on duty paid stock with invoices; 7a(B)-Credit on duty paid stock without invoices; 7(b)-
Credit on inputs or input service in transit; 8-Transfer of credit by centrally registered units; 11-Credit
of tax paid on advances: Tran 2-Table 4: Credit afforded on stocks without invoices
132
132
Table 6.7: Summary of nature of observations and deviation rates
Deficiencies as
Sample audited Deficiencies noticed percentage of
Nature of observations audited sample
Amount Amount
Number Number Number Amount
(₹ in crore) (₹ in crore)
Ineligible duties transitioned- All
7,560 75,905.09 299 52.57 3.96 0.07
Tables
Irregular claim on closing
5,164 61,547.78 335 502.20 6.49 0.83
balances- Table 5(a)
Irregular claim on unavailed credit
3,279 2,740.53 402 231.02 12.26 8.43
on capital goods- Table 6(a)
Ineligible credit of duty paid goods
in stock with documents-Table 4,151 7,262.27 148 56.48 3.57 0.78
7(a)A
Ineligible credit of duty paid goods
in stock without documents- 579 260.02 75 13.18 12.95 5.06
Table 7(a)B
Ineligible credit on inputs or input
3,514 3,842.89 397 75.29 11.30 1.96
services in transit -Table 7(b)
Irregular credit by Centralised
254 * 7 20.97 2.76
registered units- Table 8
Irregular credit of tax paid on
supplies attracting VAT and 373 465.67 23 25.83 6.17 5.55
Service Tax-Table 11
Total 1,686 977.54
* Credit already featured under closing balance category
As evident from the table above, Audit noticed 1,686 irregularities in 1,438
cases amounting to ₹ 977.54 crore. Relatively higher number of irregularities
were noticed in following categories viz; ineligible credit of duty paid goods in
stock without documents, irregular claim on unavailed credit on capital goods,
ineligible credit on inputs or input services in transit and irregular claim on
closing balances. Out of the 1,438 cases where irregularities were noticed in
the audit sample, 1,132 cases had already been verified by the Department.
The irregularities noticed amounted to ₹ 735.69 crore in the 1,132 cases that
had already been verified by the Department.
The nature and extent of compliance deviations have been elaborated in the
subsequent paragraphs. In each section, for a perspective on materiality, while
providing the respective population size extracted from GSTN we have also
provided the representation of the top 100 cases155 of the population in the
audit sample and have distinctly indicated the deviations observed in these
cases. In addition, the outcome of data analysis of the transitional credit data
in GSTN has been appropriately featured. Further, we have typically included
the money value of the top five irregularities noticed in each section and have
155 less than 100 cases in some sections where the claims were comparatively lower.
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featured illustrative cases for an appreciation of the nature and significance of

the deviations.
6.9.2.1 Ineligible duties carried forward
Section 140 of the CGST Act provides for transition of eligible duties paid on
inputs and input services under existing laws into GST regime. Eligible duties
for the purpose of the section are as defined under Explanation 1 and 2 under
the Section. A retrospective amendment was carried out vide CGST
Amendment Act, 2018 (No.31 of 2018) dated 29th August 2018, which
restricted the applicability of ‘Cenvat credit’ under Section 140 of the Act, to
‘Cenvat credit of Eligible duties’ as specified in Explanation 1 and 2 thereunder.
Further, Explanation 3 specifically excludes any cess which has not been
specified in Explanation 1 or 2 and any cess which is collected as additional
duty of Customs under sub-section (1) of section 3 of the Customs Tariff Act,
1975 from the expression ‘credit of Eligible duties’.
Thus, the Cenvat credit of Education Cess, Secondary and Higher Education
Cess, Krishi Kalyan Cess, Swatch Bharat Cess
Ineligible Duties
and Clean Energy Cess were not eligible
transitioned
duties for transition to GST.
Audit examined 7,560 transitional credit A total of 299 taxpayers had
claims involving total transitional credit of claimed ineligible duties
₹ 75,905.09 crore. These encompass claims amounting to ₹ 52.57 crore
under the different sub-sections under Table 5(a)- 259 claims
Section 140 of the Act, preferred under involving ineligible duties of
various tables of Tran 1 return. Out of these ₹ 42.95 crore.
cases, Audit noticed non-compliance in 299 Table 7(a)A- 15 claims
cases involving claim of ineligible duties involving ineligible duties of
amounting to ₹ 52.57 crore. The deviations ₹ 2.64 crore.
were in the category of ineligible cess credit Table 7(b)- 16 claims
carried forward; credit claimed on VAT; and involving ₹ 0.46 crore.
credit claimed on Personal Ledger Account
Table 8- One claim involving
(PLA)156 balances. ₹ 0.23 crore.
When this was pointed out, the Table 11- 12 claims involving
Ministry/Department accepted the audit ₹ 6.27 crore.
observations in 161 cases with ineligible
amount of ₹ 31.05 crore, of which
₹ 13.41 crore was recovered in 121 cases.
156 PLA is a mandatory requirement of Rule 8A of Central Excise Rules for deposit of Central Excise duty;
Circular No.249/83/96-CX dated 11th October 1996
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The top five irregularities noticed under this category amounted to

` 15.83 crore. An illustrative case is featured below.
A taxpayer coming under the jurisdiction of Bhubaneswar Central Tax
Commissionerate had claimed transitional credit of duty paid on coal held in
stock under section 140(3) of the CGST Act, amounting to ₹ 3.07 crore. During
verification of the claim, Audit noticed that the transitional credit included Clean
Energy Cess of ₹ 2.56 crore on coal in Table 7(a) A of Tran 1 return, which was
not eligible.
When this was pointed out (July 2021), the Ministry while admitting the audit
observation intimated (February 2022) that action was being initiated to
recover the ineligible credit claimed by the taxpayer.
6.9.2.2 Closing balance of the credit in the last returns (Table 5(a) of Tran 1)
As per Section 140(1) of the CGST Act 2017, a registered person, other than a
person opting to pay tax under Section 10, shall be entitled to take in his ECL
the amount of Cenvat Credit of Eligible duties carried forward in the return
relating to the period ending with the day immediately preceding the
appointed day, furnished by him under the existing law in such manner as may
be prescribed. The registered person shall not be allowed to take credit in the
following circumstances.
(i) where the said amount of credit is inadmissible as input tax credit
under the Act; or
(ii) where he has not furnished all the returns required under the existing
law for the period of six months immediately preceding the appointed
date; or
(iii) where the said amount of credit relates to the goods manufactured and
cleared under such exemption notification as are notified by the
Government
Table 5(a) of the Tran 1 returns was specified for the claim under this section.
On pan-India basis, a total of 1,07,408 taxpayers had claimed transitional credit
of Cenvat credit amounting to ₹ 89,407.95 crore carried forward from the
legacy returns under Section 140(1) of the Act. The top 100 claims under this
category accounted for 48 per cent of the total transitional credit claimed in
this category. Audit examined 5,164 claims under this category, of which 64
claims were from the top 100 claims.
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Audit noticed deviations in 335 claims involving transitional credit of

₹ 502.20 crore, which included nine claims out of the top 100 claims. The
deviations were in the categories of ineligible credit carried forward; credit
claimed without filing legacy returns; and excess credit carried over.
(i) Ineligible credit carried forward

Eligibility of the credit to be carried forward from the legacy returns filed for
the period ending with the day immediately preceding the appointed day was
determined under Section 16 and 17 of CGST Act. The registered person is not
entitled to the credit of any input tax unless he is in possession of a duty paid
document and has received the goods or services or both.
Further, Section 17 of the Act specifies the nature of supplies on which input
tax credit shall not be available, which inter-alia includes a) works contract
services when supplied for construction of an immovable property (other than
plant and machinery) except where it is an input service for further supply of
works contract services and b) goods or services or both received by a taxable
person for construction of an immovable property on his own account
including when such goods or services or both are used in the course of
furtherance of business.
Audit noticed irregularities in 91 claims where taxpayers had transitioned

ineligible credit amounting to ₹ 174.18 crore. Ineligible credits transitioned in
this category were on account of works contract services used for the
construction of buildings; inputs used for construction of buildings for own
account; credit claimed on services or goods not received by the taxpayers;
and credit claimed on time barred documents.
When this was pointed out, the Ministry/Department accepted the audit
observations in 26 cases with irregular amount of ₹ 66.64 crore, and
₹ 17.78 crore has been recovered in 11 cases. The top five irregularities noticed
in this category amounted to ` 82.31 crore. Two illustrative cases are featured
below.
a) A taxpayer coming under the jurisdiction of Bhubaneswar Central Tax
Commissionerate had carried forward Cenvat Credit of ₹ 54.75 crore under
Section 140(1) of the Act. The closing balance of Cenvat credit available as per
the ST3 return for the period ending June 2017 was transitioned into GST under
Table 5(a) of Tran 1 return. On scrutiny of the claim, Audit noticed that the
credit claimed by the taxpayer included the credit on inputs like TMT bars and
input services like works contract services used for civil constructions. As the
taxpayer was not engaged in supply of works contract services, the input tax
credit claimed in these categories was not allowed as per section 17 of the Act.
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Hence the credit claimed of ₹ 30.31 crore on account of the ineligible inputs
and services was not eligible for transition.
When this was pointed out (February 2021), the Ministry while accepting the
observation, intimated (February 2022) that action was being initiated to
recover the ineligible credit from the taxpayer.
b) A taxpayer coming under the jurisdiction of Belgaum Central Tax
Commissionerate was a manufacturer of Cement under legacy central excise
regime. The taxpayer had claimed transitional credit of closing balance of
Cenvat credit, carried forward from his legacy returns, amounting to
₹ 21.45 crore. During verification, Audit noticed that the taxpayer had closed
his manufacturing activity completely from November 2015 and no clearance
of manufactured products happened since then. However, the taxpayer had
claimed Cenvat credit on capital goods and input services amounting to
₹ 19.07 crore during 2016-17. As the goods or services were not used in the
factory of the manufacturer for taxable activity, the transitional credit claim of
₹ 19.07 crore was ab initio ineligible.
When this was pointed out (October 2021), the Ministry stated (February
2022) that the taxpayer intended to start the production and accordingly credit
was claimed. However, the production could not be started due to some policy
issues. The credit is eligible as neither the existing law nor the GST law cast any
embargo for claiming the Cenvat credit.
The reply is not tenable as the Cenvat credit was eligible only when the goods
or services were used for manufacturing dutiable goods or for provision of
taxable services as per Rule 2(a)(k)(l) of the Cenvat Credit Rules, 2004. In this
case, as the factory was closed and no manufacturing activity was happening,
goods and services were not used for taxable activity to claim the Cenvat
credit.
(ii) Credit claimed without filing legacy returns

Transitional credit under Section 140(1) is permissible only when the taxpayer
had furnished all the returns required under the existing law for the period of
six months immediately preceding the appointed date. Pan-India data analysis
of the transitional credit claims under this category (Table 5(a)) disclosed that
34,824157 taxpayers, who did not furnish legacy returns for the period ending
June 2017, had claimed transitional credit amounting to ₹ 43,548.32 crore.
157 Data extracted from GSTN for the taxpayers who had not filed legacy returns/not filed within the due
date under ST/CE but claimed transitional credit in Table 5(a)
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Audit during detailed examination of sampled cases noticed 30 claims where

taxpayers had carried forward Cenvat credit without filing legacy returns. The
irregular transition of credit in these cases amounted to ₹ 60.32 crore.
observations in three cases with irregular amount of ` 3.30 crore and
` 0.43 crore had been recovered in two cases. The top five irregularities
noticed in this category amounted to ` 21.71 crore. An illustrative case is
featured below.
A taxpayer coming under the jurisdiction of Bengaluru East Central Tax
Commissionerate had claimed transitional credit of Cenvat credit carried
forward from the legacy Central Excise (ER1) and Service Tax (ST3) returns,
under Table 5(a) of Tran 1 returns amounting to ₹ 12.01 crore. The amount of
credit carried forward in ER1 and ST3 returns furnished for the period ending
with the month immediately preceding the appointed day was ₹ 4.07 crore
and ₹ 7.94 crore, respectively. The taxpayer had filed Tran 1 returns for the
above claim during the month of November 2017 and the amount was credited
to the ECL on 27th December 2017. Audit noticed that the taxpayer had not
filed ST 3 returns for the period ending with June 2017, at the time of filing the
Tran 1 return. The ST3 return for the said period was filed during the month of
September 2018, after a lapse of almost 10 months from date of filing Tran 1.
Therefore, the taxpayer was not eligible to claim Cenvat credit in respect of
the returns, which was not furnished at the time of claiming transitional credit.
The ineligible transitional credit amounted to ₹ 7.94 crore.
When this was pointed out (October 2021), the Ministry stated
(February 2022) that the issue was under examination.
(iii) Excess credit carried over from legacy returns

The Cenvat credit balance in the return furnished by a taxpayer for the period
ending with the day immediately preceding the appointed day under the
existing law was eligible for transition under the section. Under the legacy
regime, every assessee had to submit a return electronically through ACES
system (Automation of Central Excise and Service Tax) as specified under Rule
7 of Service Tax Rules 1994 and Rule 12(5) of the Central Excise Rules, 2002. In
this context, ACES system included a red flag facility to mark the transitional
credit claims where the credit carried forward by the taxpayer was not as per
the system with the last return filed under Central Excise/Service Tax.
Pan-India data analysis of the claims under this category disclosed potential
excess claim in 828 cases158 amounting to ₹ 1,048.07 crore, wherein the
158 GSTINs having ITC claims more than the Cenvat Credit Balance in the legacy returns
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taxpayers had transitioned credit in excess of the Cenvat credit balance in the
legacy returns filed for the period ending June 2017.
During detailed examination of the sampled cases, Audit noticed that in 214
claims the taxpayers had transitioned Cenvat credit of ₹ 267.70 crore in excess
of the credit balances in legacy returns furnished for the period ending with
the day preceding the appointed day.
₹ 6.28 crore was recovered in 36 cases. The top five irregularities noticed in
this category amounted to ` 85.97 crore. An illustrative case is featured below.
A taxpayer coming under the jurisdiction of Mumbai East Central Tax
Commissionerate had claimed transitional credit of Cenvat credit, carried
forward from the legacy return furnished for the period ending June 2017,
amounting to ₹ 0.44 crore. The credit claimed was reflected in their ECL on 27th
December 2017. On scrutiny of the claim, Audit noticed that the ECL of the
taxpayer was again credited with transitional credit of ₹ 19.62 crore on 16th
January 2019, for which the credit was not available as per the legacy returns.
Thus, the credit claimed amounting to ₹ 19.62 crore was not in accordance
with the provisions.
When this was pointed out (July 2021), the Ministry, while accepting the
observation, intimated (February 2022) that the taxpayer had been directed to
reverse the excess credit.
6.9.2.3 Un-availed credit on capital goods (Table 6(a) of Tran 1)
As per Section 140(2) of the CGST Act 2017, a registered person other than a
person opting to pay tax under section 10, shall be entitled to take in his ECL,
credit of un availed Cenvat Credit in respect of capital goods, not carried
forward in a return, furnished under the existing law by him for the period
ending with the day immediately preceding the appointed day. Provided that
the registered person shall not be allowed to take credit unless said credit was
admissible as Cenvat credit under existing law and is also admissible as input
tax credit under this Act.
The unavailed Cenvat credit means the amount that remains after subtracting
the amount of Cenvat credit already availed in respect of capital goods by the
taxable person under the existing law from the aggregate amount of Cenvat
credit to which the said person was entitled in respect of the said capital goods
under the existing law.
Credit in respect of un-availed portion of capital goods was to be claimed in
Table 6(a) of Tran 1 return. A total of 19,244 taxpayers had claimed transitional
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credit of Cenvat credit in respect of capital goods amounting to

₹ 4,311.75 crore. The top 100 claims under this category accounted for
58 per cent of the total transitional credit claimed under this category. Audit
examined 3,279 claims in this category including 64 from the top 100 claims
covering 33 per cent of the total transitional credit claimed under this category.
Audit noticed irregularities in 402 claims, including 17 claims from the top 100
claims, involving irregular transitional credit amounting to ₹ 231.02 crore. The
deviations were due to irregular credit claimed; and availing of 100 per cent
credit on capital goods as unavailed portion of Cenvat credit on capital goods,
which was inadmissible.
(i) Irregular credit claimed
As per the proviso under Section 140(2) of the Act, transitional credit shall not
be allowed unless the credit was admissible as Cenvat credit under the existing
Cenvat Credit Rules, 2004 and is also admissible as input tax credit under the
Act. As per Rule 2(a) of Cenvat Credit Rules, 2004, capital goods means the
goods, which were used:
1. in the factory of the manufacturer of the final products but does not
include any equipment or appliances used in an office.
2. for providing output services
Thus, the credit on capital goods is permissible only on the goods, which were
used in the manufacturing or provision of services under the existing laws, and
are also being used for taxable supply under GST.
In 27 claims, Audit noticed that the taxpayers had claimed irregular credit on
capital goods amounting to ₹ 45.05 crore. The deviations were on account of
credit taken on the capital goods, which were ineligible for credit under the
existing laws.
₹ 0.73 crore was recovered in four cases. The top five irregularities noticed in
this category amounted to ` 40.07 crore. Two illustrative cases are featured
below.
a) A taxpayer coming under the jurisdiction of Bhubaneswar Central Tax
Commissionerate had claimed transitional credit of unutilised Cenvat credit on
capital goods under section 140(2) of the CGST Act. The credit was claimed on
the components and parts of Nitric Acid and Ammonium Plants imported
during April 2017 for the manufacturing unit. The credit claimed on these
goods amounting to ₹ 29.07 crore was credited to the ECL of the taxpayer
during December 2017. During verification of the claim, Audit noticed that the
capital goods were stored in a warehouse as stated in the Bill of Entry and the
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taxpayer had neither received the goods in the factory of production nor used
them for manufacturing activity to claim the Cenvat credit on the goods under
the provisions of the existing law. Therefore, credit was not claimed in their
legacy Central Excise Returns (ER1) and the entire amount was claimed as
unavailed portion of Cenvat credit under the GST transitional provisions. As
per the proviso under Section 140(2), the taxpayer was eligible for transition
of unavailed portion of Cenvat credit only when the credit was also eligible
under the existing law, which was not fulfilled in this case. Hence, the
transitional credit claimed by the taxpayer under Table 6(a) of Tran 1 return in
respect of the goods not used for manufacturing was irregular. The irregular
credit transitioned in this case amounted to ₹ 29.07 crore.
When this was pointed out (March 2021), the Ministry while accepting the
observation intimated (February 2022) that the taxpayer was under the State
jurisdiction and the draft show cause notice would be forwarded for recovery
of irregular credit.
b) A taxpayer coming under Guwahati Central Tax Commissionerate had
claimed transitional credit of unavailed Cenvat credit in respect of capital
goods under Table 6(a) of Tran 1 return amounting to ₹ 4.44 crore. The
taxpayer was covered under the erstwhile centralised registration under
Service tax provisions (AAACB2894GST036) for which the Centralised unit
(06AAACB2894G1ZR) coming under Gurugram Central Tax Commissionerate
had already claimed transitional credit as per Section 140(8) of the CGST Act.
Further, the credit claimed by the Gurgaon unit was also distributed among
the units covered under the erstwhile centralised registration. As such, the
other units of the centralised registrant were not eligible to claim the benefit
of transitional credit provisions of the Act. Thus, the transitional credit claimed
by Guwahati unit, being one of the units covered under the erstwhile
centralised registration, amounting to ₹ 4.44 crore under Section 140(2) of the
Act was irregular.
When this was pointed out (August 2021), the Ministry stated (February 2022)
that a show cause notice was being issued to the taxpayer to safeguard
revenue.
Audit noticed another 19 cases pertaining to the other registered units of same
taxpayer covered under the Centralised registration claiming transitional
credit of ₹ 159.22 crore under Section 140(2). As the Centralised unit had
already claimed the transitional credit and distributed the credit to the units
covered under the centralised registration as per section 140(8) of the Act,
these individual claims from other registered units have a potential risk
exposure of irregular credit.
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(ii) Availing of 100 per cent credit on capital goods

The unavailed portion of Cenvat credit represents the balance of credit in
respect of goods on which portion of credit had already been taken under the
legacy rules. As per Rule 4(2)(a) of Cenvat Credit Rules, the credit in respect of
capital goods at any point of time in a financial year shall be taken only for an
amount not exceeding 50 per cent of the duty paid on such capital goods in the
same financial year. Hence, the section provides for transition of 50 per cent
of the credit in respect of capital goods on which credit was claimed under the
legacy returns. The restriction is in line with the provisions of existing rules to
safeguard against potential misuse of credit on goods that are either ineligible
for credit or on which benefit of depreciation on the Cenvat credit portion was
claimed under Section 32 of the Income Tax Act 1961. This view was expressed
in para 5.1 of the Boards’ guidance note.
Audit noticed irregularities in 375 claims wherein taxpayers had claimed 100
per cent credit on the capital goods as unavailed portion of Cenvat credit on
capital goods. Irregular transitional credit involved in these claims amounted
to ₹ 185.96 crore.
When this was pointed out, the Department accepted the audit observation in
124 cases with irregular amount of ₹ 43.31 crore, and ₹ 2.78 crore was
recovered in 28 cases. The top five irregularities noticed in this category
amounted to ` 74.23 crore. An illustrative case is featured below.
A taxpayer coming under the jurisdiction of Udaipur Central Tax
Commissionerate had claimed transitional credit of unavailed portion of
Cenvat credit on capital goods under Section 140(2) of the Act amounting to
₹ 15.56 crore. On scrutiny of the claim, Audit noticed that the taxpayer had
claimed 100 per cent credit in respect of the capital goods, which was not
permissible under the extant provisions.
When this was pointed out (July 2021), the Ministry stated (February 2022)
that the taxpayer was eligible for credit as the credit was not claimed earlier.
The reply is inconsistent with para 5.1 of the Boards’ guidance note, which
states that “if no credit was availed earlier, credit of entire amount cannot be
availed through this Table.”
Audit is of the view that the Department may ensure that the records of
taxpayers, who have carried forward 100 per cent of the credit, on capital
goods in GST regime, are examined to rule out availment of a portion
(50 per cent) of the credit in the previous legacy returns of 2016-17 and
2017-18 (first quarter). Further, the Department needs to take a uniform
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position on this issue by clarifying the instructions contained in Para 5.1 of the
Board’s guidance.
6.9.2.4 Credit on duty paid stock (Table 7(a) A and B of Tran 1)
As per Section 140(3) of the Act, a registered person, who was not liable to
register under the existing law or who was engaged in the manufacture of
exempted goods or provision of exempted services or who was providing
works contract service and was availing of the benefit of notification
No. 26/2012—Service Tax, dated 20th June, 2012 is entitled to take, in his ECL,
credit of eligible duties in respect of inputs held in stock and inputs contained
in semi-finished or finished goods held in stock on the appointed day subject
to the following conditions.
(i) such inputs or goods are used or intended to be used for making taxable
supplies under this Act;
(ii) the said registered person is eligible for input tax credit on such inputs
under this Act;
(iii) the said registered person is in possession of invoice or other prescribed
documents evidencing payment of duty under the existing law in respect
of such inputs;
(iv) such invoices or other prescribed documents were issued not earlier
than twelve months immediately preceding the appointed day; and
(v) the supplier of services is not eligible for any abatement under this Act:
Provided that where a registered person, other than a manufacturer or a
supplier of services, is not in possession of an invoice or any other document
evidencing payment of duty in respect of inputs, then, such registered person
shall also be allowed to take credit at such rate and in such manner, subject to
such conditions as may be prescribed, including that the said taxable person
shall pass on the benefit of such credit by way of reduced prices to the
recipient.
A) Claims with duty paid documents
The credit under this category is claimed under column 7A of Table 7(a) of Tran
1 return. A total of 1,91,301 taxpayers had claimed transitional credit of eligible
duties paid on inputs, semi-finished goods or finished goods held in stock on
the appointed date amounting to ₹ 30,562.94 crore. Out of this, the credit
claimed by 13,989 migrated159 taxpayers accounted for 98 per cent of the total
159 Taxpayers who were registered under existing Central Excise and Service Tax laws and are registered
under Rule 24 of CGST Rules, 2017.
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credit under this category. Audit examined 4,151 claims under this category
including 2,004 claims of migrated taxpayers.
Audit noticed deviations in 148 claims involving irregular transitional credit of

₹ 56.48 crore, including 61 deviations from the claims of migrated taxpayers.
The irregularities were in the nature of credit claimed on duty paid goods
either not in stock or in excess of declared stock; irregular credit claimed by
works contract suppliers; credit claimed on time barred documents; credit
claimed by ineligible taxpayers; and credit claimed without supporting duty
paid documents.
Significant audit findings under each of the categories are discussed in the
(i) Credit claimed on duty paid goods either not in stock or in excess of
declared stock
Transitional credit of duty paid on goods is available if the registered person
had held such goods in stock on the appointed day. The taxpayer should claim
the credit of duty paid on such goods with the prescribed documents
evidencing duty payment.
In 12 claims, Audit noticed that the taxpayers had claimed credit on goods
either not in their possession on the appointed day or on the quantity of goods
in excess of the stock held on the appointed day, involving irregular credit
amounting to ₹ 14.78 crore.
When this was pointed out, Ministry/Department accepted the audit
observations in seven cases with irregular amount of ₹ 12.04 crore, and
₹ 0.08 crore was recovered in four cases. The top five irregularities noticed in
below.
a) A taxpayer coming under the jurisdiction of Pune-1 Central Tax
Commissionerate had claimed transitional credit of ₹ 13.60 crore in respect of
duty paid goods held in stock on the appointed date under section 140(3) of
the Act, in respect of which the taxpayer was in possession of the duty paid
documents. During verification, Audit noticed that in many duty paid
documents the consignee was different from the claimant, evidencing that the
taxpayer was not in possession of the goods for which credit was claimed on
the appointed day. Thus, the claim of the taxpayer of ₹ 9.26 crore based on the
invoices against other consignees, at different State jurisdictions, was
irregular.
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When this was pointed out (August 2021), the Ministry, while accepting the
audit observation, intimated (February 2022) that DRC-01A160 had been issued
to the taxpayer.
b) A taxpayer coming under the jurisdiction of Howrah Central Tax
Commissionerate had claimed transitional credit of duty paid on finished
goods held in stock on the appointed day under section 140(3) of the Act. The
taxpayer had filed the details of goods held in stock on the appointed date in
respect of which duty paid documents were available. During verification of
the claim, Audit noticed that the taxpayer had claimed credit on the quantity
of goods in excess of the declared quantity of stock as on the appointed day
resulting in excess credit. The excess credit of duty claimed on these goods
amounted to ₹ 1.37 crore.
When this was pointed out (April 2021), the Ministry, while accepting the audit
observation, intimated (February 2022) that an amount of ₹ 0.04 crore had
been recovered from the taxpayer.
(ii) Irregular credit claimed by works contract suppliers
A registered person who was providing works contract services under the
existing law is eligible to claim the credit on duty paid goods held in stock on
the appointed date subject to the condition that he was availing the benefit of
Notification 26/2012-Service tax dated 20th June 2012. The notification was
available for the service providers who were engaged in providing construction
of building or civil structure or part there of intended for sale to a buyer, where
the value of taxable services includes the land value.
Audit noticed that the works contract suppliers who had not availed the
benefit of the above said notification, claimed transitional credit of duty paid
stock held on the appointed date; the irregular credit claimed in 11 such claims
When this was pointed out, the Ministry intimated (February 2022) that show
cause notices had been issued in two cases. The top five irregularities noticed
in this category amounted to ` 5.09 crore. Two illustrative cases are featured
below.
a) A taxpayer coming under the jurisdiction of Visakhapatnam Central Tax
Commissionerate had claimed transitional credit of duty paid stocks held on
the appointed date under Section 140(3) of the Act. Amount of credit claimed
by the taxpayer under Table 7(a)A of Tran 1 return under this category
160 The proper officer shall, before service of notice to the person chargeable with tax, interest and
penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, shall
communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A
of FORM GST DRC-01A.”
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amounted to ₹ 1.75 crore. During examination, Audit noticed that the

taxpayer, as works contract service provider under legacy service tax
provisions, had not claimed the benefit of notification 26/2012 ST dated
26th June 2012. Hence, the taxpayer was ineligible to claim the benefit of
transitional credit in respect of duty paid stock held by him on the appointed
date. Accordingly, the credit of ₹ 1.75 crore representing duty paid goods held
in stock transitioned by the taxpayer under the section was irregular.
When this was brought to the notice (August 2021), the Department stated
(December 2021) that the taxpayer was eligible for credit under the section as
the taxpayer was engaged in works contact services.
The reply is not tenable as the taxpayer was not availing benefit of Notification
26/2012-Service tax dated 20th June 2012 under the existing law, which was an
essential condition for claiming transitional credit on stocks for the works
contract service providers.
Ministry stated (February 2022) that the observation was being examined.
b) A taxpayer registered under Kochi Central Tax Commissionerate had
claimed transitional credit of duty paid goods held in stock on the appointed
date, under Table 7(a) A of Tran 1 return, for which duty paid documents were
in possession. The credit transitioned by the taxpayer under Section 140(3) of
the Act amounted to ₹ 0.98 crore. On verification of the claim, Audit noticed
that the taxpayer was providing works contract services for industrial or
commercial constructions on sub-contract basis by paying tax under Rule
2(A)(ii) of Service tax (Determination of value) Rules, 2006. Thus, the taxpayer
was not availing the benefit of notification 26/2012 ST dated 26 th June 2012,
which was required for claiming the transitional credit benefit under Section
140(3) of the Act. Hence, the credit of ₹ 0.98 crore claimed by the taxpayer
was irregular.
When this was pointed out (March 2021), the Ministry stated (February 2022)
that the taxpayer was at present under the State GST jurisdiction, and the
matter was under correspondence with them.
(iii) Credit on duty paid stock claimed without supporting or eligible
documents
Credit under the section is permissible only on the basis of duty paid invoices
or other prescribed documents duly indicating the evidence of payment of
duty under the existing law in respect of the goods on which credit is claimed.
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Report
ReportNo.
No.55of
of2022
2022(Indirect
(IndirectTaxes
Taxes –̶ Goods
Goods and
and Services
Services Tax)
Tax)
In 18 claims, Audit noticed that the taxpayers had claimed credit of duty paid
on the goods held in stock without having the prescribed duty paid documents
evidencing payment of duty. Irregular credit claimed in these cases amounted
to ₹ 8.93 crore.
observations in five cases with irregular amount of ₹ 3.46 crore, and
₹ 0.04 crore was recovered in one case. The top five irregularities noticed in
A taxpayer coming under Bhopal Central Tax Commissionerate jurisdiction had
claimed transitional credit of ₹ 1.26 crore on duty paid goods held in stock on
the appointed date under Table 7(a)A of Tran 1 return. During verification of
the claim, Audit noticed that the taxpayer was not in possession of the invoices
or documents evidencing payment of Central Excise duty on the said goods
under the existing Central Excise Act, 1944. Thus, the transitional credit
claimed by the taxpayer of ₹ 1.26 crore was ineligible as the taxpayer had not
borne the Central Excise Duty for which claim was made.
that the observation was being examined.
(iv) Credit claimed on time barred documents

One of the conditions specified for claims under Section 140(3) of the Act was
that the invoices or other prescribed documents were issued not earlier than
twelve months immediately preceding the appointed day. Hence, the credit on
documents or invoices issued earlier than 30th June 2016 were not eligible for
credit under the Act.
In 53 claims, Audit noticed that taxpayers had claimed transitional credit of

duty paid on good held in stock on the appointed day based on the documents
issued earlier than 12 months from the appointed day. Irregular transitional
credit claimed on these documents amounted to ₹ 3.38 crore.
A taxpayer coming under the jurisdiction of Bengaluru North West Central tax
Commissionerate had claimed transitional credit of ₹ 65.08 crore under the
Table 7a(A) of Tran 1 return for the duty paid goods held in stock on the
appointed day. On verification of the duty paid documents produced in
support of the claim, Audit noticed that some of the duty paid documents, for
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which credit was claimed, were issued earlier than 12 months from the
appointed date. Hence, the same were time barred for claiming the credit
under the Act. The irregular credit claimed on these time barred documents
2022) that the issue was under examination and action would be taken to
safeguard the revenue.
(v) Ineligible credit claimed

Credit under Section 140(3) of the Act is permissible in respect of eligible duties
paid on inputs held in stock and inputs contained in semi-finished goods or
finished goods held in stock on the appointed day. Hence, the credit in respect
of input services is not envisaged under the section. Further, the eligibility of
credit on the goods depends upon the condition that the goods are used or
intended to be used for making taxable supplies under the Act for which input
tax is eligible.
In 54 claims, Audit noticed that the taxpayers had transitioned ineligible credit
involving transitional credit of ₹ 24.24 crore. The ineligible credits represented
credit claimed on input services and other ineligible credits comprising excess
credit claimed and credit claimed by taxpayer claiming abatement under the
Act.
this category amounted to ` 18.10 crore. An illustrative case is featured
below.
A taxpayer coming under the jurisdiction of Bengaluru East Central Tax
Commissionerate was a registered importer dealer under the legacy Central
Excise Act. The taxpayer had claimed transitional credit of ₹ 10.41 crore, under
Table 7(a) of Tran 1 return as duty paid goods held in stock at the job workers’
premises. The taxpayer had claimed that these goods were supplied to his job-
worker through challans as per job-work provisions of the Central Excise Act.
Audit noticed that the taxpayer was not entitled to claim the benefit of job-
work provisions under the erstwhile Central Excise Act, as he was neither a
registered manufacturer nor had followed the prescribed procedures161 for job
work manufacturing. Further, the taxpayer had not paid excise duty on the
goods claimed to be manufactured through job-workers nor furnished any
161 Notification 214/86 CE Dated 25th March 1986 specifies the conditions and procedures for job-work
manufacturing, which inter alia requires permission from the Commissioner of Central Excise.
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assessment returns to that effect. The taxpayer, as registered importer dealer,

was actually supplying goods to the job-worker through the Cenvat invoices or
bill of entries as mentioned in the Excise returns filed by the taxpayer. Hence,
the Cenvat credit of duty paid goods consigned to the job workers as on the
appointed date does not qualify under Section 140(3), and the irregular credit
claimed amounted to ₹ 10.41 crore.
2022) that the case had been entrusted to anti-evasion wing for detailed
verification.
B) Claim without duty paid documents
A registered person when not in possession of documents evidencing payment
of duty, was also eligible for taking credit in respect of duty paid goods held in
stock if he passed on the benefit of such credit by way of reduced prices to the
recipient. This scheme of deemed credit was available only to taxpayers other
than a manufacturer or a supplier of services who was not in possession of
invoice or any other document evidencing payment of duty in respect of inputs
held in stock as on the appointed day. The scheme was applicable for a period
of six months from the appointed date and the credit shall be availed subject
to the conditions specified under Rule 117(4) of CGST Rules.
As per the proviso to Section 140(3) of the CGST Act, a registered person can
be allowed to take input tax credit on goods held in stock on the appointed day
in respect of which he is not in possession of any document evidencing
payment of central excise duty. The registered person availing of this scheme
had to specify separately the details of stock held on the appointed day in
accordance with the provisions of clause (b) of Rule 117(2) of CGST Rules 2017.
However, the benefit of input tax was restricted to 60% of tax payable on such
goods, which attract CGST at the rate of nine per cent or more, and 40% of tax
payable for other goods on supply of such goods after the appointed date. The
amount of input tax credit shall be credited to ECL after the central tax
applicable on such supply has been paid, as declared in Tran 2 return.
A total of 89,653 taxpayers had claimed transitional credit of duty paid goods
held in stock without duty paid documents as declared in column 7B of Table
7(a) of Tran 1 return. Out of this, 27,328 taxpayers declared the supply of goods
on payment of GST in Tran 2, against which the transitional credit of Central
Tax amounting to ₹ 1,444.91 crore was afforded to the ECL of the taxpayers.
Audit examined 579 claims under this category.
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Audit noticed deviations in 75 claims involving irregular transitional credit of

₹ 13.18 crore. Deviations were of the nature of ECL credited from both Tran 1
and Tran 2 or credit afforded in ECL without filing Tran 2; credit claimed on
stocks not declared or more than that declared in Tran 1 and ineligible credits
claimed.
(i) Input tax credited to ECL from both Tran 1 and Tran 2 or without filing
Tran 2
Taxpayers had to furnish details of stock held on the appointed date on which
credit was claimed in Table 7(a)7B of Tran 1 return. Eligible credit in respect of
the goods was to be credited to ECL of the taxpayer on filing Tran 2 returns
duly indicating the supply of these goods on payment of GST. The
proportionate credit afforded to the ECL would be based on the rate of tax paid
on the supplies declared in Tran 2 returns.
Pan-India analysis162 of the claims preferred under Table 7(a)B of Tran 1 return
and the amount of central tax credited to ECL against such claims disclosed
that the ‘eligible duties’ declared under Table 7(a)B of Tran 1 had been credited
to ECL before furnishing Tran 2 returns detailing supply of goods on payment
of GST. Audit observed that the lack of proper validation in the GSTN had
resulted in affording irregular credit through Tran 1 return in 2,102 claims
amounting to ₹ 114.96 crore. Out of these, 1,792 taxpayers had received credit
without filing Tran 2 returns, and ECL was credited twice in respect 310
taxpayers.
Audit noticed that 1,792 taxpayers had received irregular transitional credit of
₹ 92.71 crore without filing Tran 2 returns, based on mere declaration of stocks
made under Tran 1. In respect of 310 taxpayers, who had filed Tran 2, the ECL
was credited twice- ₹ 22.25 crore on filing Tran 1 and ₹19.86 on filing Tran 2,
resulting in an irregular credit of ₹ 22.25 crore. Detailed audit of sample cases
in CBIC field formations confirmed these irregularities in 66 claims involving
irregular credit of ₹ 10.60 crore.
162 Analysis GSTN data on amount credited to ECL as per Table 7(a)B of Tran 1 and Credit afforded on
filing Tran 2 or cases where Tran 2 not filed.
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below.
a) A taxpayer coming under the jurisdiction of Bengaluru North West Central
Tax Commissionerate had claimed credit in respect of duty paid goods held in
stock under Table 7(a) B of Tran 1 return. On verification of the claim, it was
noticed that the taxpayer had claimed credit of ₹ 2.25 crore on the goods
valued at ₹ 26.80 crore through Tran 1 against which no supporting documents
were available. Audit further noticed that the input tax of ₹ 2.25 crore claimed
was credited to ECL even before the taxpayer filed Tran 2 return. Further, the
ECL of the taxpayer was again credited with ₹ 1.06 crore when these goods
were supplied on payment of GST and subsequently declared in Tran 2. This
resulted in double credit to the ECL, and the credit of ₹ 2.25 crore afforded
without filing of Tran 2 was irregular.
2022) that the credit from Tran 1 was incorrectly transferred to electronic
credit ledger due to GST portal issue. In this case, the credit was not utilised
and the taxpayer had reversed the amount in GSTR-3B.
b) A taxpayer coming under the Central Tax jurisdiction of Ghaziabad

Commissionerate had claimed transitional credit of eligible duties paid on
goods held in stock under proviso to Section 140(3) of the Act. The taxpayer
had declared the details of stock of electronic goods falling under chapter
heading 84 and 85, valued at ₹ 7.21 crore. The eligible duties in respect of
these goods were claimed under column 6 of Table 7(a)B of Tran 1 amounting
to ₹ 1.17 crore, which was credited to the ECL as input tax credit under CGST
on 29 August 2017 without the taxpayer filing Tran 2. On verification of the
claim, Audit noticed that the taxpayer had filed Tran 2 for the period from July
2017 to December 2017 declaring supply of these goods on payment of GST
and the corresponding CGST credit of ₹ 0.30 core attributed to the supply was
credited to the ECL during March 2018. This resulted in double credit to the
ECL, and the credit of ₹ 1.17 crore afforded through Tran 1 was irregular.
When this was pointed out (September 2021), the Ministry stated (February
2022) that the issue was under examination, and the revenue would be
protected.
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(ii) Credit claimed on stocks not declared or in excess of declaration

in Tran 1
According to Rule 117(2)(b) of CGST Rules, 2017, the registered person

claiming transitional credit of eligible duties under section 140(3) of the CGST
Act is required to specify separately the details of stock held on the appointed
day in Tran 1. Rule 117(4)(b)(iii) of the said rules specifies the submission of
Tran 2 return detailing the supply of such goods effected during the
subsequent six tax periods from the appointed date indicating payment of tax
on such supplies.
Audit noticed irregularities in nine claims involving irregular transitioning of

credit amounting to ₹ 2.58 crore. Irregularities included claiming credit on
goods not in stock on the appointed date; and claiming credit on goods
supplied in excess of stock declared in Tran 1.
When this was pointed out, the Ministry/Department accepted audit

observations in four cases with irregular amount of ₹ 1.11 crore. The top five
irregularities noticed under this category amounted to ₹ 2.42 crore. Two
illustrative cases are featured below.
a) A taxpayer coming under the Central Tax jurisdiction of Mumbai East

Commissionerate had claimed transitional credit of ₹ 21.75 crore under Table
5(a), 6(a) and 7(b) of Tran 1, under Section 140(1), (2) and (5), respectively. The
taxpayer had not declared any duty paid goods held in stock on the appointed
date in Table 7(a)B, and was thus not eligible for credit under Section 140(3) of
the Act. However, Audit noticed that the ECL of the taxpayer was credited with
CGST component based on the supply of duty paid goods as declared in Tran
2. This was contrary to the provisions of Section 140(3) of the Act. Hence, the
amount of credit afforded to ECL on the basis of Tran 2 filed during the period
from July 2017 to December 2017, amounting to ₹ 1.12 crore was irregular as
the goods were not held in stock on the appointed date.
When this was pointed out (July 2021), the Ministry stated (February 2022)
that the observation was being examined.
b) A taxpayer coming under the Central Tax jurisdiction of Chennai North

Commissionerate had claimed transitional credit of eligible duties on goods
held in stock on appointed date. The motor vehicle parts on which credit was
claimed were valued at ₹ 0.99 crore. On verification of the claim, it was noticed
that the taxpayer had claimed credit of duty paid on goods not declared in the
details of closing stock furnished in Tran 1 return and on some goods the
supply was shown more than the quantity of stock declared in Tran 1. These
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goods were supplied on payment of duty during the period from July 2017 to
December 2017 and declared in the Tran 2 returns. Thus, the taxpayer by
declaring supply of goods in excess of the stock held, received excess credit in
the ECL. The credit claimed on goods which were not in stock on the appointed
date had resulted in excess credit of ₹ 0.57 crore in the ECL.
When this was pointed out (July 2021), the Ministry, while accepting the
observation, intimated (February 2022) that a show cause notice demanding
₹ 0.64 crore had been issued to the taxpayer.
6.9.2.5 Inputs/input services in transit
Section 140(5) of the Act provides that a taxpayer shall be entitled to take
credit of eligible duties and taxes in respect of inputs or input services received
on or after the appointed day but the duty or tax in respect of which has been
paid by the supplier under existing law, subject to the condition that the
invoice or any other duty or tax paying document of the same was recorded in
the books of account of such person within a period of 30 days from the
appointed date or within such further extended 30 days period as permitted
by the Commissioner.
The credit under Section 140(5) was to be claimed under Table 7(b) of Tran 1
return. Under this category, a total of 25,959 taxpayers had claimed
transitional credit of ₹ 7,332.78 crore in respect of inputs or input services
received on or after the appointed date, but the duty or tax on which was paid
under the existing law. The top 100 cases in this category accounted for 36 per
cent of the total transitional credit claimed under this category. Audit
examined 3,605 claims involving transitional credit of ₹ 3,649.41 crore, which
included 67 claims out of the top 100 claims under this category.
Audit noticed irregularities in 397 claims involving irregular transitional credit

of ₹ 75.29 crore, which included irregularities in seven claims from the top 100
claims. Irregularities were in the nature of availing credit on invoices not
accounted for within the prescribed time limit; transitioning ineligible or
excess credit; and irregular credit claimed on capital goods.
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(i) Credit claimed on invoices /documents not accounted for within the
prescribed time
Section 140(5) of the Act envisages that the credit under this category was
admissible when the invoice or any other duty or tax paying document of the
same was recorded in the books of account of the taxpayer within a period of
30 days from the appointed day. The proviso under Section 140(5) provided
for extension of this time limit for a further period not exceeding 30 days by
the Commissioner163, on sufficient cause being shown.
A pan-India analysis of the transitional credit data under this category,

extracted from GSTN, showed 5,711 claims being non-compliant with the
mandatory condition of accounting the supplies within the stipulated time,
even when the time limit was considered as 60 days from the appointed date.
The amount of transitional credit involved in these claims was ₹ 127.91 crore.
Detailed audit confirmed non-compliance in 249 claims resulting in
transitioning of irregular credit of ₹ 54.46 crore.
this category amounted to ₹ 17.30 crore. An illustrative case is featured
below.
A taxpayer coming under the Central Tax jurisdiction of Dibrugarh Central Tax
Commissionerate had claimed transitional credit of ₹ 3.18 crore in respect of
inputs or input services received on or after the appointed day under section
140(5) of the Act. On scrutiny of the claim, it was noticed that the taxpayer had
taken credit of ₹ 2.89 crore on certain input services which were not accounted
for within the time limit specified. The taxpayer had not received any extension
of time limit from the jurisdictional Commissioner to avail the credit on these
tax paying documents. Hence, the credit claimed on the documents which
were not accounted for within the specified time limit was contrary to the
provisions resulting in irregular claim amounting to ₹ 2.89 crore.
When this was pointed out (August 2021), the Ministry, while accepting the
observation, stated (February 2022) that a show cause notice had been issued.
163 The Commissioner has power to condone the delay in accounting the tax paid documents beyond 30
days from the appointed date, for a further period not exceeding 30 days on sufficient cause shown.
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(ii) Irregular credit claimed on capital goods
Section 140(5) of the Act provides for the transition of eligible duties and taxes
in respect of inputs or input services received on or after the appointed day.
Hence, the provision does not envisage transition of Cenvat credit on capital
goods received on or after the appointed day.
In 40 cases, Audit noticed that the taxpayers had transitioned Cenvat credit
of duty paid on capital goods amounting to ₹ 7.06 crore under this category.
₹ 0.60 crore was recovered in four cases. The top five irregularities noticed
under this category amounted to ₹ 4.40 crore. Two illustrative cases are
featured below.
a) A taxpayer coming under Madurai Central Tax Commissionerate had

claimed transitional credit of ₹ 4.54 crore under section 140(5) of CGST Act on
inputs and input services received on or after the appointed date. On
verification of the claim under Table 7(b) of Tran 1 return, it was noticed that
the taxpayer had claimed credit on rolling resistance testing machine, mixer
feeding system and parts of the machines used in the manufacture of tyres
which come under capital goods whereas section 140(5) of CGST Act provides
for transition of duty or tax paid in respect of inputs or input services only.
Therefore, the credit claimed of ₹ 1.64 crore on these goods was irregular.
When this was pointed out (April 2021), the Ministry stated (February 2022)
that the matter was referred to the Audit Circle which had verified the
transitional credit claim of the taxpayer and final reply would be furnished on
receipt of their report.
b) A taxpayer coming under the jurisdiction of Mangaluru Central Tax

Commissionerate had claimed transitional credit of ₹ 1.27 crore under section
140(5) of the Act on inputs and input services received on or after the
appointed date. Audit noticed that the taxpayer had claimed Cenvat credit of
duty paid on paper making machines, transformers, other machines and parts
of machines which the taxpayer had declared as capital goods. As the
provisions do not provide for transition of duty paid in respect of capital goods,
the transitional Cenvat credit claimed in respect of these goods amounting to
₹ 1.05 crore was irregular.
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that DRC-01A had been issued to the taxpayer and SCN will be issued within
due date if tax dues are not paid by the taxpayer.
(iii) Ineligible or excess credit claimed
Section 140 (5) of the Act, provides for transition of eligible duties or taxes paid
on inputs or input services, which are received by the taxpayer on or after the
appointed day, but the eligibility is determined by the usage of such supplies.
In 108 claims, Audit noticed that the taxpayers had claimed Cenvat credit on
goods or services ineligible for transition. These include the Cenvat credit
claimed on documents that are time barred; Cenvat credit on goods or services
ab initio ineligible under Cenvat credit rules; supplies not used in furtherance
of business etc. The transitional credit involved in these cases amounted to
₹ 13.77 crore.
observation in 41 cases with irregular amount of ₹ 4.19 crore, and ₹ 0.76 crore
was recovered in 10 cases. The top five irregularities noticed in this category
amounted to ₹ 2.72 crore. Two illustrative cases are featured below.
a) Credit under Section 140 (5) of CGST Act is permitted in respect of eligible
duties and taxes paid under the existing law. A taxpayer coming under
Agartala Central Tax jurisdiction had claimed transitional credit of ₹ 0.93 crore
in respect of goods received on or after the appointed date. During verification
of the claim, Audit noticed that the taxpayer had claimed credit on the basis of
documents which did not contain duty paid details, indicating the taxpayer had
not borne the incidence of duty. Hence, the credit claimed by the taxpayer
amounting to ₹ 0.93 crore was ineligible for transition.
When this was pointed out (August 2021), the Department accepted the audit
observation and issued a show cause notice demanding the ineligible credit
claimed.
b) As per Rule 4(1) of Cenvat Credit Rules, 2004, the Cenvat credit in respect
of inputs may be taken immediately on receipt of the inputs in the factory of
the manufacturer or the in the premises of the provider of output service,
provided that the manufacturer or the provider of output service shall not take
Cenvat credit after one year of the date of issue of any of the documents
specified in Sub-Rule (1) of Rule 9.
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A taxpayer coming under Hyderabad Central Tax jurisdiction had claimed input
tax credit of ₹ 1.17 crore in respect of goods received on or after the appointed
date under Section 140(5) of CGST Act. However, during verification of the
claim it was noticed that the taxpayer had claimed credit in respect of duty
paid documents that were time barred for claiming credit as per Cenvat credit
rules. Further, the goods were cleared earlier than one year from the
appointed date, which does not satisfy the condition that the goods were
received on or after the appointed date. Hence, the credit claimed amounting
to ₹ 0.36 crore on these invoices was irregular.
When this was pointed out (March 2021), the Ministry while admitting the
observation intimated (February 2022) that a show cause notice was being
issued.
6.9.2.6 Credit in respect of registered persons with centralized registration

under the existing law (Table 8 of Tran 1)
As per Section 140(8) of CGST Act 2017, a registered person having centralised
registration under the existing law who has obtained a registration under GST
Act shall be allowed to take, in his ECL, credit of the amount of Cenvat credit
carried forward in a return, furnished under the existing law by him, in respect
of the period ending with the day immediately preceding the appointed day in
such manner as may be prescribed. The credit claimed under the sub section
is eligible for transfer to any of the registered persons having the same
Permanent Account Number (PAN) for which the centralized registration was
obtained under the existing law.
Credit under this category was to be claimed for transfer under Table 8 of Tran
1 return. A total of 974164 taxpayers had claimed and transferred transitional
credit of ₹ 16,284.83 crore under Section 140(8) of the Act. The top 20 records
under this category accounted for 65 per cent of the transitional credit claimed
and distributed. Audit selected 284 claims under this category involving
transitional credit of ₹ 10,435.49 crore and audited 254 cases involving
₹ 10,032.55 crore.
Audit noticed irregularities in seven claims, either due to irregular credit

transfer or excess credit claimed amounting to ₹ 20.97 crore.
The top five irregularities noticed under this category amounted to

` 20.47 crore. Two illustrative cases are featured below.
164 Pan-India transitional credit data extracted from GSTN
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(i) Irregular credit transfer
The credits under Section 140(8) are eligible for transfer to any of the
registered persons having the same Permanent Account Number (PAN) for
which the centralized registration was obtained under the existing law. Audit
noticed in five cases, the taxpayers had transferred credit to other registered
persons who were not part of the centralized registration obtained under the
existing law.
A taxpayer coming under Hyderabad Central Tax Commissionerate jurisdiction

had transitioned closing balance of Cenvat credit of ₹ 20.79 crore into GST
from his legacy service tax returns filed for the month of June 2017. The
taxpayer had centralised registration under the existing service tax provisions,
covering two of his registered premises at Hyderabad and Chennai. However,
the taxpayer, from the claim furnished under Table 8 of Tran 1 return, had
transferred ₹ 11.18 crore to his other registered premises which were not
covered under the centralised registration under the existing law. This was
irregular as the credit transfer is permissible only to the registered persons
having the same PAN for which the centralized registration was obtained
under the existing law.
When this was pointed out (August 2021), the Ministry stated (February 2022)
that, with the introduction of GST, the Cenvat credit accumulated with the
erstwhile centralized registrants was allowed to transition to all its constituent
entities, whose activities were hitherto monitored and taxes were paid
centrally. Thus, the provisions were designed to allow them to distribute the
accumulated credit across these constituents irrespective of the fact that they
were part of the erstwhile centralized registration.
Reply of the Ministry is not tenable as the units which were not part of the
erstwhile centralized units were not part of the erstwhile value added tax
chain, and hence were not eligible for credit accumulated under legacy rules.
Further, section 140(8) of the Act specifically mentions that the credit claimed
by the centralized units is eligible for transfer only to the registered persons
for which the centralized registration was obtained under the existing law.
(ii) Excess credit claimed
The transition of credit under Section 140(8) is subject to the condition that
the registered person had furnished his return for the period ending with the
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day immediately preceding the appointed day within three months of the
appointed day, and the said return is either an original return or a revised
return where the credit has been reduced from that claimed earlier. Further,
the credit shall be admissible as input tax credit under GST Act.
A taxpayer who is centrally registered provider of taxable services under the

existing law falling within Bengaluru East Central Tax jurisdiction had claimed
the transitional credit of Cenvat credit from the legacy returns under section
140(8) of the Act. The taxpayer had carried forward Cenvat credit into his ECL
and distributed the ITC among its other units having the same PAN number.
During verification of the claim, it was noticed that the taxpayer had revised
the legacy return for the period ending with the day immediately preceding
the appointed date. The original return with the closing balance of Cenvat
credit amounting to ₹ 112.38 crore was filed on 14 August 2017 and the
revised return with closing balance of Cenvat credit ₹ 118.99 crore was filed
on 28 September 2017, within the stipulated 90 days from the appointed date.
However, it was observed that the ECL of the taxpayer was credited with the
amount carried over from the revised return, which had higher Cenvat credit
amount. This was in contravention to the rule provisions which stipulated that
revised amount is permissible only when the credit had been reduced from
that claimed earlier. The deviation from the rules provisions had resulted in
excess credit of ₹ 6.61 crore.
When this was pointed out (October 2021) the Ministry, while accepting the
audit observation, stated (February 2022) that a show cause notice was being
issued.
6.9.2.7 Credit in respect of tax paid on supply both under Value Added Tax
Act and under Finance Act, 1994 (Table 11 of Tran 1)
As per Section 142(11)(c) of the CGST Act, where tax was paid on any supply
both under the Value Added Tax Act (VAT) and under Chapter V of the Finance
Act, 1994 (Service tax) on which tax shall be leviable under this Act, the taxable
person shall be entitled to take credit of value added tax or service tax paid
under the existing law to the extent of supplies made after the appointed day.
Further, Rule 118 of CGST Rules, specifies that the registered person to whom
the provisions of 142(11) of the Act applies shall submit a declaration in Tran
1 furnishing the proportion of supply on which VAT or Service tax has been
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paid before the appointed day but the supply is made after the appointed day,
and the input tax credit admissible thereon.
Transitional credit in such instances was to be claimed in Table 11 of Tran 1. A

total of 3,034 taxpayers had claimed transitional credit of service tax paid
under the provisions of Finance Act 1994, amounting to ₹ 968.89 crore for the
supplies made after the appointed date under Section 142(11)(c) of the Act.
The top 20 claims under this category accounted for 51 per cent of the total
transitional credit claimed under the table. Audit examined 373 claims under
this category involving transitional credit of ₹ 465.67 crore, which included 12
claims out of the top 20 claims.
Audit noticed irregularities in 23 claims involving transitional credit of

₹ 25.83 crore, which included three claims from the top 20 claims. Audit
noticed irregular credit claimed on supplies not liable for tax under GST;
supplies completed prior to the appointed date; credit claimed without
payment of service tax and credit taken twice on same supplies.
Significant findings are illustrated in the following paragraphs.
(i) Irregular Credit on Service Tax paid on advances
Credit under Section 142 11(c) is permissible on the supplies where tax was
paid under both VAT and Service tax rules, on which tax shall also be leviable
under this Act.
A taxpayer coming under Secunderabad Central Tax Commissionerate had

claimed transitional credit of ₹ 3.33 crore under Table 11 of Tran 1 return. The
credit claimed was in respect of service tax paid on mobilisation advances
against which the supplies were made after the appointed date. However, the
Authority of Advance Ruling165 vide order No.03/ARA/2020 dated 31st March
2020 had ruled that the taxpayer was not liable to pay GST on the mobilisation
advances transitioned into GST regime. Thus, the taxpayer would not pay GST
on the supply made after the appointed date against the mobilisation
advances transitioned into GST. However, we noticed that the taxpayer had
claimed transitional credit on the service tax paid on mobilisation advances
that remained unadjusted as on the appointed date, which is irregular as the
165 Authority of Advance Ruling is the authority constituted under the provisions of Section 96 of the
CGST Act, 2017 empowered to issue rulings on the clarifications sought by the taxpayers.
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tax is not liable on the supply to that extent. The irregular credit claimed by
the taxpayer in this regard amounted to ₹ 3.33 crore.
2022) that the reliance placed on the Advance ruling is misplaced as the said
decision pertains to GST, whereas the instant case relates to availing
transitional credit on service tax paid on advances received prior to the
appointed date, for which supply was made after the appointed date on
payment of GST.
Department, therefore, needs to specifically confirm that GST was paid by the
taxpayer on the supply to the extent of consideration received as mobilisation
advance.
(ii) Irregular credit claimed on supplies made prior to the appointed date
Credit under Section 142 11(c) is permissible on service tax paid on advances
to the extent of supplies made after the appointed date. However, Audit
noticed instances wherein the taxpayers had claimed transitional credit of
service tax paid on advances received prior to the appointed date for which
supply was also completed prior to the appointed date.
In 12 cases, Audit noticed that the taxpayers had claimed ineligible credit
amounting to ₹ 11.67 crore. The irregularities were in the nature of credit
claimed on the supplies made prior to the appointed date; and ineligible credit
claimed under the section.
observations in eight cases with irregular amount of ₹ 7.95 crore, and
₹ 0.58 crore was recovered in one case. The top five irregularities noticed in
this category amounted to ₹ 10.76 crore. Two illustrative cases are featured
below.
a) A taxpayer coming under the jurisdiction of Mumbai South Central Tax

Commissionerate had claimed transitional credit under Table 11 amounting to
₹ 45.55 crore. On verification, it was noticed that the credit claimed by the
taxpayer included Cenvat credit on the input services on which tax was paid
under reverse charge basis. As the supplies in this case were made prior to the
appointed date for which payment was also made under the existing rules,
161
161
credit was irregular. The irregular credit transitioned in this case amounts to
₹ 5.82 crore.
When this was pointed out (February 2021), the Ministry stated (February
2022) that DRC-01A had been issued to the taxpayer and a show cause notice
was being prepared.
b) A taxpayer engaged in works contract supply coming under the

jurisdiction of Bengaluru East Central Tax Commissionerate had claimed
transitional credit of ₹4.07 core, being service tax paid on advances received
prior to the appointed date under Section 142(11)(c) of the CGST Act.
Verification of the claim revealed that in many instances the credit was claimed
in respect of the projects for which supplies had already been completed to
the extent of advances received, indicating completion of provision of services
to that extent. However, the taxpayer claimed credit stating that the supply
was to be made after the appointed date, which is irregular. The irregular
credit claimed in this case amounted to ₹ 2.47 crore.
2022) that the observation was not admitted but no reasons were recorded.
The reply of the Ministry is not tenable as it did not substantively address the
issue pointed out.
(iii) Credit claimed without payment of Service tax
As per section 142(11)(c) of the CGST Act, the credit is permissible on the value
added tax or service tax paid under the existing law.
In 10 claims, Audit noticed that the taxpayers had taken ineligible credit
amounting to ₹ 10.83 crore under the section without payment of service tax
observations in six cases with irregular amount of ₹ 5.05 crore, and
` 1.24 crore was recovered in two cases. The top five irregularities noticed in
this category amounted to ₹ 10.23 crore. An illustrative case is featured below.
A taxpayer under Mumbai East Central Tax Commissionerate, engaged in

supply of construction services, had claimed transitional credit of service tax
under Section 142(11)(c) of CGST Act. The credit was claimed in respect of
service tax of ₹ 2.17 crore paid on advances received during the month of June
162
162
2017. However, verification of service tax returns (ST3) of the taxpayer for the
relevant period revealed that the taxpayer had not discharged any service tax
liability during the period in respect of the advances received. Hence, the credit
claimed in this case was without discharging service tax liability under the
provisions of chapter V of the Finance Act, 1994. The irregular credit claimed
When this was pointed out (September 2021), the Ministry, while accepting
the audit observation, intimated (February 2022) that ITC of ₹ 1.23 crore had
been recovered. Further, action was being taken to recover the balance ITC of
₹ 0.41 crore while the remaining ITC of ₹ 0.53 crore pertained to SGST credit
taken against VAT payment.
6.9.2.8 Non-payment of interest on ineligible transitional credit
Rule 117(3) of CGST Rules, 2017 specifies that the amount of credit specified
in the application in Form GST Tran 1 shall be credited to the ECL of the
applicant maintained in Form GST PMT 2 on the common portal. As per Rule
121, the recovery of amount credited under sub-Rule (3) of Rule 117 may be
initiated under Section 73 or, as the case may be, Section 74 of the Act. The
proceedings under Section 73 or 74 shall require the taxpayer to pay the credit
along with interest payable thereon under Section 50 of the Act.
Further, Section 50(1) of the Act stipulates that every person liable to pay tax
in accordance with the provisions of this Act or rules made thereunder but fails
to pay the tax or any part thereof to the Government within the period
prescribed, shall for the period for which the tax or any part thereof remains
unpaid, pay interest at 18 per cent.
Audit noticed that in 60 cases, the irregular transitional credit claimed by the
taxpayers amounting to ₹ 95.20 crore was recovered. However, the interest on
irregular credit claimed amounting to ₹ 2.92 crore was not recovered.
observations in 29 cases with interest amount of ₹ 1.30 crore, and ₹ 0.27 crore
was recovered in 16 cases. The top five irregularities noticed in this category
amounted to ₹ 1.28 crore. An illustrative case is featured below.
163
163
A taxpayer coming under the jurisdiction of Jamshedpur Central Tax

Commissionerate had claimed transitional credit amounting to ₹ 3.90 crore,
which was credited to the ECL on 19th December 2017. Out of this, the taxpayer
had paid back irregular transitional credit of ₹ 1.28 crore on 31st January 2020.
Though the Department had directed the taxpayer to pay the interest on the
irregular credit claimed, the taxpayer contested the interest liability and the
same was not recovered. However, Audit noticed that the taxpayer had utilized
the irregular credit of ₹ 1.28 crore towards CGST payment during the month
of December 2017 itself. Hence, the irregular credit claimed had resulted in
short payment of duty attracting interest liability under Section 50(1) of the
Act. The non-payment of interest worked out to ₹ 0.49 crore.
2022) that the show cause notice would be issued to protect the revenue.
6.9.2.9 Conclusion and recommendations
Out of 7,560 cases that were examined in detail, Audit observed 1,686
compliance deviations in 1,438 cases amounting to ₹ 977.54 crore,
constituting a deviation rate of 22 per cent. Irregularities noticed were
relatively higher in following categories viz; ineligible credit of duty paid goods
in stock without documents, irregular claim with respect to unavailed credit on
capital goods, ineligible credit on inputs or input services in transit and
irregular claim on closing balances. Out of 1,438 cases, where Audit noticed
irregularities, 1,132 cases constituting 79 per cent, had already been verified
by the Department. The irregularities noticed in these 1,132 cases amounted
to ₹ 735.69 crore. Considering the extent of Department’s verification, the
deviation rate suggested that verification process carried out by the
Department suffered from certain inadequacies.
Further, data analysis disclosed that transitional credit claims through Table
7aB of Tran 1 were leading to excess credits in many cases as ECL was getting
incorrectly populated from both Tran 1 and Tran 2. Pan-India data analysis also
indicated a significant number of cases where transitional credit claims in Table
5a had exceeded the closing balance of legacy return.
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Report
Report
Report
No.No.
No.
5 of552022
of
of 2022
2022
(Indirect
(Indirect
(Indirect
Taxes
Taxes
Taxes
– Goods
–– Goods
Goods
andand
and
Services
Services
Services
Tax)Tax)
Tax)
In view
In view
of the
of the
above
above
compliance
compliance
findings,
findings,
Audit
Audit
recommends
recommends
thethe
following:
following:
TheThe
Department
Department
may:
may:
1. 1. Ensure
Ensure
verification
verification
of the
of the
high
high
riskrisk
claims
claims
reflected
reflected
in Table
in Table
7(a)B
7(a)B
of Tran
of Tran
1 (Credit
1 (Credit
on on
duty
duty
paid
paid
stock
stock
without
without
invoices)
invoices)
andand
thethe
cases
cases
where
where
thethe
transitional
transitional
credit
credit
claim
claim
under
under
Table
Table
5(a)5(a)
(Closing
(Closing
credit
credit
balance
balance
of legacy
of legacy
returns)
returns)
waswas
in excess
in excess
of the
of the
closing
closing
balance
balance
of legacy
of legacy
return.
return.
2. 2. Initiate
Initiate
remedial
remedial
measures
measures
forfor
thethe
compliance
compliance
deviations
deviations
pointed
pointed
outout
during
during
thisthis
audit
audit
before
before
thethe
claims
claims
become
become
time
time
barred.
barred.
New
New
Delhi
Delhi (SATISH
(SATISHSETHI)
SETHI)
Dated:
Dated:
31 March 2022Principal
Principal
Director
Director
(Goods
(Goods
and
and
Services
Services
Tax-II)
Tax-II)
Countersigned
Countersigned
New
New
Delhi
Delhi (GIRISH
(GIRISH
CHANDRA
CHANDRAMURMU)
MURMU)
Dated:
Dated:
31 March 2022 Comptroller
Comptroller
and
and
Auditor
Auditor
General
General
of of
India
India
165
165165
165
APPENDICES
Appendix-I: Audit findings noticed during the period prior to

2020-21
(Refer Para No. 2.3)
Amount in `. Crore
DAP State Commissio Amount Amount Amount SGST Ministry’s Audit
NO. nerate Objected Accepted Recovered Component Reply Comments
(For GST
observations)
Service Tax
Failure of Department in detecting irregular availing of CENVAT Credit
1 Karnataka Bengaluru 50.14 0.04 0.04 NA Not NA
North Received
Failure of department in detecting non/short payment of Service Tax
2 Bengaluru 3.9 3.9 NA Accepted Nil
Karnataka
East
3 Mumbai 19.8 - - NA Not NA
Maharashtra South accepted
Sub-total 73.84 3.94 0.04 - - -
Goods and Services Tax
Incorrect carry forward of CENVAT credit of ST/Tax/cess in TRAN-1
1 Maharashtra Belapur 5.16 - - No SGST Not NA
component as Received
this is related
to CENVAT
credit carried
forward under
section 140 of
CGST Act
5 Madhya Indore 0.32 0.32 0.23 No SGST Accepted Nil
Pradesh component as
this is related
to CENVAT
credit carried
forward under
section 140 of
CGST Act
6 Madhya Ujjain 0.12 - - No SGST Not NA
Pradesh component as Received
this is related
to CENVAT
credit carried
forward under
section 140 of
CGST Act
8 Madhya Jabalpur 1.2 1.2 0.49 0.36 Not NA
Pradesh Received
23 Haryana Gurgaon 0.15 - - No SGST Accepted NA

component as
this is related to
CENVAT credit
carried forward
under section
140 of CGST Act
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Goods and
and Services
Services Tax)
Tax)

(For GST
observations)
Non-payment of GST
2 Maharashtra Belapur 1.85 1.85 0.67 Accepted Nil
4 Delhi Delhi West 0.48 0.34 0.34 0.24 Not NA
Received
Incorrect availing of ITC credit of GST
3 Gujarat Ahmedaba d 0.42 0.42 0.42 0.21 Accepted Nil
South
South
Non-payment of Interest on delayed payment of GST
7 Madhya Jabalpur 0.16 0.16 0.16 0.08 Accepted Nil
Pradesh
9 Madhya Jabalpur 0.18 0.18 0.18 0.09 Accepted Nil
Pradesh
1 Jharkhand Jamshedpur 0.19 0.19 - 0.095 Accepted Nil
Irregular sanction of Refund Claim under GST

15 Goa Goa 4.29 - - 0.11 Not accepted. Reply is not
Ministry acceptable
stated as a period
(January of 60 days
2022) that has been
SCN for wrong provided to
ITC had been verify the
issued to the refund claim
assesse which which also
was include
confirmed issuing of
along with notice under
interest. RFD 08 and
Further, it was finalizing
not possible refund
to adjust the considering
demand while taxpayer’s
sanctioning reply.
refund due to Further, as
time per section
constraint for 54(10), in
issuing notice case of any
in RFD-08, payment of
allowing tax, interest,
taxpayer to penalty by
reply the the
notice and taxpayer,
passing the department
order may
considering withheld the
taxpayer’s amount or
reply and refund the
liability of partial
interest in amount by
case of deducting
delayed the amount
refund payable by
the
taxpayer.
Sub-total 14.52 4.66 1.82 1.75 - -
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and Services
Services Tax)
Tax)

(For GST
observations)
Incorrect mapping of tax payers in All in One (AIO) system data base
16 Goa Goa NMV166 NMV NMV NA Accepted NA
Non–synchronization of GST portal and All in One data for ‘filing of returns’
24 Goa Goa NMV NMV NMV NA Not NA
Received
Total 88.36 8.6 1.86 1.745 - -
166 No money value

169
169
Appendix-II: Achievement of the recovery targets by the Field

Formations
(Refer Para No. 3.6.5)
Amount in `. Crore
Sl. No. Name of Zone Target Arrears Target Shortfall

realized achieved in target
(Percent) achieved
(Percent)
2019-20
1 MEERUT CE & GST 458 191.73 41.86 58.14
2 THIRUVANANTHAPURAM 235 74.23 68.41
CE & GST 31.59
3 BHOPAL CE & GST 862 225.33 26.14 73.86
4 RANCHI CE & GST 575 90.45 15.73 84.27
5 KOLKATA CE & GST 1,201 84.50 7.04 92.96
2020-21
1 MEERUT CE & GST 1,592 693.81 43.58 56.42
2 VADODARA CE & GST 294 121.89 41.46 58.54
3 GUWAHATI CE & GST 51 21.14 41.44 58.56
4 CHANDIGARH CE & GST 267 97.48 36.51 63.49
5 BHOPAL CE & GST 623 150.80 24.20 75.80
6 KOLKATA CE & GST 1,065 153.59 14.42 85.58
170
170
Appendix-III: Payment of refunds
(Refer Para No. 5.1.1.4)
Refund process
Application for refund

(Form RFD-01)
Resubmit the application after
rectifying the defect. New
ARN is generated
Issue Acknowledgment within Application complete Issue Deficiency Memo within

YES NO
15 days of application (Form in all respect 15 days of application
RFD-02) (Form RFD 03)
Zero rated supply Others
Issue provisional refund within Verify whether whole Issue sanction order amount
7 days of acknowledgement or part amount is inadmissible NO
(Form RFD-06)
(RFD-04)
or past dues to be adjusted
YES
Issue Notice for inadmissible Issue notice for adjustment of

amount (Form RFD-08) dues (Form RFD-07)
Receipt of reply to SCN from

the taxpayer within 15 days
Issue sanction order after Payment advice for crediting

reducing the inadmissible and of refund amount in the bank
adjusted amount (Form RFD-06) account (RFD-05)
171
171
Appendix IV: Impact on State Goods and Services Tax

(Refer Para 5.9)
(Amount in ` lakh)
State/UT No. of SGST amount SGST amount SGST amount
Para No. cases involved accepted recovered
Andhra Pradesh 13 86.44 31.22 1.95
5.7.3.1 3 1.93 0.73 0.73
5.7.3.2 1 0.01 0.01 0.00
5.7.3.3 2 25.88 23.05 0.00
5.7.3.4 1 0.07 0.07 0.07
5.8.1 1 1.26 0.00 0.00
5.8.5 5 57.30 7.36 1.15
Arunachal Pradesh 1 0.01 0.01 0.00
5.8.5 1 0.01 0.01 0.00
Assam 7 0.05 0.04 0.00
5.7.1.2 7 0.05 0.04 0.00
Bihar 5 0.04 0.00 0.00
5.7.1.2 5 0.04 0.00 0.00
Chhattisgarh 1 0.00 0.00 0.00
5.7.1.2 1 0.00 0.00 0.00
Delhi 51 36.60 16.71 3.45
5.7.1.2 40 2.38 0.03 0.00
5.7.2 4 13.69 13.61 0.49
5.7.3.2 2 5.26 0.11 0.00
5.7.3.6 3 3.80 2.96 2.96
5.8.5 2 11.47 0.00 0.00
Gujarat 38 818.47 75.83 37.84
5.7.1.2 12 6.58 0.00 0.00
5.7.2 7 142.58 50.10 37.84
5.7.3.2 10 18.72 13.28 0.00
5.7.3.7 1 12.45 12.45 0.00
5.7.5.3 2 167.92 0.00 0.00
5.7.5.5 1 250.00 0.00 0.00
5.8.1 1 7.05 0.00 0.00
5.8.3 1 22.56 0.00 0.00
5.8.5 3 190.61 0.00 0.00
Haryana 47 376.60 2.15 1.28
5.6.1.1 to 5.6.1.3 1 3.25 0.00 0.00
5.7.1.2 22 0.94 0.00 0.00
5.7.2 7 308.97 0.00 0.00
5.7.3.1 1 12.54 0.00 0.00
5.7.3.2 3 14.49 0.00 0.00
5.7.3.4 12 26.49 2.15 1.28
5.8.1 1 9.92 0.00 0.00
Himachal Pradesh 1 0.03 0.00 0.00
5.7.1.2 1 0.03 0.00 0.00
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Jammu 1 0.00 0.00 0.00
5.7.1.2 1 0.00 0.00 0.00
Karnataka 48 343.53 4.22 0.45
5.7.2 3 10.20 0.07 0.07
5.7.3.1 22 78.65 0.39 0.38
5.7.3.3 6 9.91 2.78 0.00
5.7.3.6 8 7.74 0.98 0.00
5.7.3.7 1 0.89 0.00 0.00
5.8.1 4 157.47 0.00 0.00
5.8.2 4 78.66 0.00 0.00
KERALA 142 136.60 23.89 1.46
5.7.1.2 83 6.35 3.79 0.00
5.7.3.1 1 0.69 0.69 0.00
5.7.3.2 1 2.73 0.00 0.00
5.7.3.4 40 51.46 0.72 1.46
5.7.3.6 6 7.91 1.55 0.00
5.7.5.1 5 28.75 0.00 0.00
5.8.1 4 17.95 17.14 0.00
5.8.5 2 20.76 0.00 0.00
Madhya Pradesh 22 966.88 950.43 0.00
5.7.1.2 9 0.38 0.00 0.00
5.7.2 4 11.61 0.00 0.00
5.7.3.2 3 868.90 868.90 0.00
5.7.3.3 2 1.74 1.74 0.00
5.8.1 1 1.57 0.00 0.00
5.8.2 2 79.79 79.79 0.00
5.8.5 1 2.89 0.00 0.00
Maharashtra 73 552.80 0.94 0.00
5.6.2 6 310.33 0.00 0.00
5.7.1.2 54 5.85 0.00 0.00
5.7.3.1 3 8.10 0.00 0.00
5.7.3.3 1 0.94 0.94 0.00
5.7.3.5 1 0.65 0.00 0.00
5.7.3.6 1 0.54 0.00 0.00
5.7.4.2 2 206.63 0.00 0.00
5.8.2 5 19.76 0.00 0.00
Mizoram 1 0.02 0.00 0.00
5.7.1.2 1 0.02 0.00 0.00
Nagaland 1 0.00 0.00 0.00
5.7.1.2 1 0.00 0.00 0.00
Odisha 2 0.03 0.00 0.00
5.7.1.2 2 0.03 0.00 0.00
Punjab 49 122.20 8.38 1.39
5.7.1.2 24 1.50 0.00 0.00
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5.7.2 4 37.15 5.44 0.00
5.7.3.2 13 60.68 1.55 0.00
5.7.3.4 6 21.76 0.29 0.29
5.8.1 1 0.57 0.57 0.57
5.8.5 1 0.53 0.53 0.53
Rajasthan 19 72.35 12.21 2.71
5.6.1.4 1 2.71 2.71 2.71
5.7.1.2 2 0.00 0.00 0.00
5.7.2 2 0.72 0.00 0.00
5.7.3.2 4 7.67 6.34 0.00
5.7.3.3 1 1.99 1.99 0.00
5.7.3.4 4 8.10 0.00 0.00
5.8.1 2 1.31 1.17 0.00
5.8.5 3 49.85 0.00 0.00
Tamil Nadu 116 901.45 0.00 0.00
5.6.2 18 749.61 0.00 0.00
5.7.1.2 71 1.10 0.00 0.00
5.7.3.1 3 12.06 0.00 0.00
5.7.3.2 1 2.45 0.00 0.00
5.7.3.4 21 103.25 0.00 0.00
5.7.3.5 1 31.40 0.00 0.00
5.8.5 1 1.58 0.00 0.00
Telangana 23 432.91 400.54 16.44
5.6.2 2 378.23 378.23 0.00
5.7.1.2 4 2.41 0.00 0.00
5.7.2 3 5.10 5.10 5.10
5.7.3.1 5 6.29 6.29 6.29
5.7.3.2 5 3.22 3.22 0.00
5.7.3.3 1 2.66 2.66 0.00
5.8.2 1 5.05 5.05 5.05
5.8.5 2 29.96 0.00 0.00
Uttar Pradesh 79 146.89 3.25 0.00
5.6.1.1 to 5.6.1.3 1 0.32 0.32 0.00
5.7.1.2 38 1.78 0.00 0.00
5.7.2 16 42.65 0.00 0.00
5.7.3.1 4 4.70 1.30 0.00
5.7.3.2 1 0.04 0.00 0.00
5.7.3.3 4 7.64 0.00 0.00
5.7.3.7 3 47.31 0.00 0.00
5.8.1 4 12.57 1.63 0.00
5.8.2 2 12.65 0.00 0.00
5.8.5 6 17.23 0.00 0.00
UttraKhand 1 13.96 0.00 0.00
5.7.2 1 13.96 0.00 0.00
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2022 (Indirect
(Indirect Taxes
Taxes –̶ Goods
Goods and
and Services
Services Tax)
Tax)

WEST BENGAL 54 85.44 83.86 47.04
5.7.1.2 34 0.56 0.00 0.00
5.7.2 4 3.41 3.41 0.03
5.7.3.2 7 1.53 0.51 0.00
5.7.3.4 1 0.39 0.39 0.00
5.7.3.6 1 1.14 1.14 1.14
5.8.1 5 78.11 78.11 45.57
5.8.5 2 0.30 0.30 0.30
Grand Total 795 5093.31 1613.68 114.01
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Report No. 5 of 2022 (Indirect Taxes – Goods and Services
Report No.Tax)
5 of 2022 (Indirect Taxes ̶ Goods and Services Tax)
Glossary
ACES Automation of Central Excise and Service Tax
ADVAIT Advanced Analytics in Indirect Taxation
AIO All-in-one Systems
ATT Adjusted Total Turnover
BIFA Business Intelligence and Fraud Analytics
BIFR Board for Industrial and Financial Reconstruction
BRC Bank Realisation Certificate
BTP Bio-Technology Park
CA Chartered Accountant
CAROTAR Customs ( Administration of Rules of Origin under Trade

Agreements) Rules
CBDT Central Board of Direct Taxes
CBEC Central Board of Excise and Customs
CBIC Central Board of Indirect Taxes and Customs
CENVAT Central Value Added Tax
CESTAT Customs Excise and Service Tax Appellate Tribunal
CGST Central Goods and Services Tax
CHA Customs House Agents
CSO Central Statistics Office
CVD Countervailing duty
DDM Directorate of Data Management
DDO Drawing and Disbursing Officer
DGARM Directorate General of Analytics and Risk Management
177
176
DGCEI Directorate General of Central Excise Intelligence
DGFT Director General of Foreign Trade
DGGI Directorate General of Goods and Services Tax Inteliigence
DGPM- Directorate General of Performance Management -Tax Arrears

TAR Recovery
DoR Department of Revenue
DRI Directorate of Revenue Intelligence
ECL Electronic Credit Ledger
EGM Export General Manifest
EHTP Electronics Hardware Technology Park
EOU Export Oriented Unit
EXPWOP Export without payment of tax
FIRC Foreign Inward Remittance Certificate
FTA Free Trade Agreements
GST Goods and Services Tax
GSTAM Goods and Services Tax Audit Manual
GSTIN Goods and Services Tax Identification Number
GSTN Goods and Services Tax Network
GSTR Goods and Services Tax Return
HSN Harmonised system of nomenclature
ICAI Institute of Chartered Accountants of India
IFF Invoice Furnishing Facility
IGST Integrated Goods and Services Tax
IIP Index of Industrial Production
178
177
INVITC Inverted Duty Structure
ISD Input Service Distributor
ITC Input Tax Credit
ITR Income Tax Return
LDPE Low Density Polyethylene
MEIS Merchandise Exports from India Scheme
MIS Management Information System
MoF Ministry of Finance
MOU Memorandum of Understanding
MPRs Monthly Performance Reports
NACEN National Academy of Customs, Excise & Narcotics
NACIN National Academy of Customs, Indirect Taxes & Narcotics
NCLT National Company Law Tribunal
OIA Order-in-Appeal
OIOs Orders-in-Original
PAN Permanent Account Number
PAO Pay and Accounts Officer
PFMS Public Financial Management System
PIB Press Information Bureau
PLA Personal Ledger Account
QRMP Quarterly return with monthly payment
RBI Reserve Bank of India
RCM Reverse Charge Mechanism
REAP Returns Enhancement and Advance Project
179
178
RMS Risk Management System
SAC Service Accounting Codes
SAD Special Additional Duty
SCN Show Cause Notice
SEZWOP Special Economic Zone without payment of tax
SGST State Goods and Services Tax
SOP Standard Operating Procedure
SSCA Subject Specific Compliance Audit
STP Software Technology Park
TDS Tax Deducted at Source
UDIN Unique Document Identification Number
UT Union Territory
UTGST Union Territory Goods and Services Tax
VAT Value Added Tax
XOS Export Outstanding Statement
180
179
Union Government Department of Revenue (Indirect Taxes – Goods and Services Tax)–Report No. 5 of 2022
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Report of the
© COMPTROLLER AND
AUDITOR GENERAL OF INDIA
www.cag.gov.in
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Dedicated to Truth in Public Interest
Union Government

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Union Government Department of Revenue (Indirect Taxes – Goods and Services Tax)–Report No.

for the year ended March 2021

Laid on the table of Lok Sabha/Rajya Sabha on ____________

taxpayers up to August 2021. An analysis was performed with a view to deriving

Chapter VI: Transitional Credits under GST

Chapter I: Indirect Taxes Administration and Revenue Trend

1.1 Nature of Indirect Taxes

8 With effect from 8 July 2017 in Jammu and Kashmir

may be provided by Parliament by law on the recommendations of

1.2 Organizational Structure

The Department of Revenue (DoR) of Ministry of Finance (MoF) functions

management of Information Technology projects and DG, National Academy of

1.3 Revenue Trend

1.3.1 Indirect Taxes revenue trend

12 Formerly National Academy of Customs Excise &Narcotics (NACEN)

1.3.1.1 Growth of Indirect Taxes - Trends and Composition

Indirect Taxes as a percentage of GDP had continued to decline from

1.3.2 Comparative growth of various components of Indirect Taxes

16 Infrastructure cess came into effect from 1 March 2016.

between facilitation and enforcement and to promote a culture of self-compliance in customs

Chart 1.1: Trends in various components of Indirect Taxes

1,17,813 1,09,283 1,34,750

Total Indirect Taxes Central GST Taxes Customs Central Excise

requires apportionment of IGST between Centre and States.

requires apportionment of IGST between Centre and States.

requires apportionment of IGST between Centre and States.

and Services Tax and GST Compensation Cess.

the negative impact of Covid-19 pandemic on Indian economy, which affected

1.3.3 GST revenue of Government of India: Budget Estimates vs Actual

Report No. 5 of 2022 (Indirect Taxes – Goods and Services Tax)

0 5,26,000 28,000 5,80,000

` 1,50,215 crore and `` 15,001

30 CGST, IGST and GST Compensation Cess

2.1 Audit Mandate

2.1.1 Examination of systems and procedures and their efficacy

Audit of receipts includes an examination of the systems and procedures and

2.1.2 Audit of Indirect Taxes

2.2 Audit Universe

Commissionerates are divided into three categories viz. Executive

Each executive Commissionerate has four to six Divisions headed by a

Each Division consists of on an average four to seven Ranges. The Range,

2.3 Audit Sample, Audit Efforts and Audit Products

2.4 Follow-up of previous CAG’s Audit Reports

No. 255 300 239 297 1,091

Amt. 435.56 1018.79 401.26 1236.26 3,091.87

Paragraphs As on No. 237 269 216 205 927

Recoveries As on No. 178 160 116 107 561

31 Antarang data set

The Ministry had accepted audit observations in 927 audit paragraphs

2.5 Response by Ministry to audit observations included in this

Chapter III: Effectiveness of Compliance Verification Mechanism

3.1 Status of implementation of simplified return mechanism

of the CGST Rules, 2017.

available to the registered person in GSTR-3B.

supplies liable to reverse charge

and restricting ITC of the recipient taxpayers to the supplies declared by

However, owing to the unprepared GST ecosystem and complexity of return

3. No two-way communication between the supplier and the recipient

38 Details of invoices furnished by non-resident taxpayers.

deliberate misstatements by the taxpayers. Further, the filing of GSTR-1 is yet

3.2 Scrutiny of Returns under GST

3.3 Monitoring mechanism with respect to Directorate General of

44 Vide Office Memorandum F. No. A-11013/19/2017-Ad.-IV dated 11.07.2017